Let’s Talk About Financing
We’ve partnered with our go-to lending team, The Burns Team of Directors Mortgage, to bring you some insight and hot tips on today’s mortgage market. Whether you’re a first-time home buyer or refinancing, we’re bringing you some expert insight from our friend and partner, Brett Burns, to help you navigate financing today.
Brett, why is it important to partner with an excellent lender?
“Choosing an excellent lender is very key to a successful home purchase transaction. Not only will they help to advise you on multiple loan options, rates, and programs, but they can be a key difference in providing confidence/security to sellers and a seller’s realtor, helping to get your offer accepted. One misconception when negotiating a home purchase is that the highest offer always wins. This is not the case. A key component to getting your offer accepted is presenting a customized offer to the seller, emphasizing key terms that are important to that specific seller, and providing the confidence that you (as a buyer) can in fact close on these terms. Having an excellent lender and realtor are very key to this success.”
What should someone consider when selecting a lender?
“There are a few things one should consider when choosing a lender. First off, what type of company do they work for? Is it a bank, broker, or mortgage banker? There are several key differences here, such as what selection of loan programs are available, who processes, who underwrites and funds the loan (this can be within the same company or done by an external company), and whether they are located locally to the market you are buying in. Industry statistics show that over 60% of loan transactions have “issues” that arise throughout the process. Choosing the right lender with the right structure in the right area is very key to a successful transaction.”
When should I get pre-approved? How long is a pre-approval good for?
“The sooner the better! Often buyers are hesitant to start the pre-approval process until they think they are “ready” or until they find a home, however, this is typically a bit too late. It is very common that a buyer will need to work on a few things to improve their loan scenarios or approval amounts, so the sooner a buyer starts the pre-approval process, the better. Also, many buyers end up missing out on a house or two as they are just not ready to make an offer and the home may sell before they have time to get pre-approved. Remember pre-approvals are at no cost, so there is no harm to do it sooner! Typically, an approval is good for 90-120 days depending on the lender, however, it is very simple to extend the approval with minimal work. We constantly help clients stay approved for a year or more.”
What's your take on today's interest rates? Is it still a good time to purchase a home or refinance a loan?
“In regards to today’s rates, we are in a normal interest rate cycle. Rates are very closely tied to economic data and inflation rates. Mortgage rates are up now simply because inflation is up. We can look back 50 years and see the exact same trend: as inflation rises, so do mortgage rates. Inversely, as soon as inflation begins to fall, mortgage rates follow suit. I don’t believe there is any reason for concern here, remember rates are just a tool to get a home loan and are not permanent. As soon as inflation falls, clients will be able to refinance to lower rates. I think it is a great time to buy now because buyers have the ability to negotiate better than they’ve had in the last 3-4 years due to decreased buyer competition. Ironically, this is primarily due to today’s buyers being concerned with rates. The price you pay for a house is permanent, whereas rates are not! The perfect scenario is to make a home purchase at a better price (as today’s market offers) and then refinance in the next 18-24 months to a lower rate. Then you get the best of both worlds.”
Do you have any predictions for the future of interest rates?
“I think we will see rates trend down as soon as inflation stabilizes and especially once inflation begins to decline. I think we will see a sizable improvement in rates in the next 18-24 months.”
Will you briefly describe an ARM and why it might be a benefit for a buyer?
“An ARM loan is an Adjustable Rate Mortgage. The ARM loans available today are much different (in a good way) than some of the predatory ARM programs of the 2006-2008 era. The main ARM programs we have are a 7-year and 10-year ARM. These are still 30-year loan programs, however, the initial rate is only fixed for 7 or 10 years. Given that they are fixed for a shorter period than 30 years, the rate is better. Many clients love this option as they can get a lower rate/payment, however still have a guaranteed fixed rate for 7 or 10 years. When most clients look at their plans, it is very rare to keep the same house, let alone the same loan for more than 7 or 10 years. This is especially so in today’s market, as it is very widely expected for rates to decline in 18-24 months, allowing clients to refinance. Many of our clients plan to take an ARM today and then refinance to a 30-year fixed when rates drop.”
What advice do you have for someone taking a mortgage out for the first time?
“Remember that buying a home/getting a mortgage is one of the largest financial decisions you will ever make, therefore it is critical to have a great professional, experienced lender and real estate agent on your side. Your ability to succeed on an offer, get a great loan, and have a smooth enjoyable process is key in the selection of your lending and real estate partners. Once you have found these great partners, take the time to meet with them, ask questions and really structure a great plan. Again, this is a major financial decision and buyers often don’t put enough importance or time into the process. It can be a great experience if approached correctly!”
