All You Need To Know About Home Loans

Here at Destinations Credit Union, we provide a variety of products and services to meetimage of a mortgage application your specific financial needs and in the most ideal ways possible. One such example is our home loans. Let’s take a closer look at this product and how its application process works.

What is a home loan?

A home loan, or a mortgage, enables you to purchase a home without having to foot all the cash out of your pocket when purchasing. You will, however, need to make a down payment, which is typically between 3.5-20% of the home’s appraised value, along with closing costs and some other fees. The lender then finances the rest of the purchase. You’ll repay the loan, along with interest, over the course of (generally) 15 to 30 years.

Are all home loans alike?

Before you get started, you’ll need to choose a mortgage type. A conventional loan will necessitate a 5-20% down payment on the home.

There’s also an FHA loan, which only requires a down payment of 3.5%, but necessitates mortgage insurance. If you’re a military veteran, consider obtaining a VA loan, which lets you buy a home with zero down payment.

Once you’ve chosen the kind of loan which is best for your scenario, you may be given a choice of repayment arrangements for that loan.

Here are the three common types of mortgages:

  1. 30-year fixed-rate mortgage. The interest rate on this 30-year mortgage will remain fixed no matter the changes to the national rate.
  2. 15-year fixed-rate mortgage. This mortgage will also have a fixed interest rate, but the term lasts just 15 years. The monthly payments will be higher, but the overall interest paid over the course of the loan will be significantly lower.
  3. Adjustable-rate mortgage (ARM).  An ARM gives the borrower a lower interest rate in the early years of the loan, and then a gradual increase (adjustment) in rate over the rest of the life of the mortgage if rates are going up.

What do I need to know before applying for a home loan?   

A home is likely to be the largest purchase you will ever make. To qualify for one, you will need to prove that you are living a financially responsible life and that you can afford the monthly payments.

The primary way lenders gauge your financial responsibility is through your credit score. This number is like a grade that tells lenders how you’ve handled your past credit card accounts and other debts. It will include the length of time you’ve had your credit cards and loans open, the timeliness with which you’ve made your payments, the trajectory of your debt and the amount of available credit you might use. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. You can check your score for free on Credit Karma. You might also consider ordering a free credit report from all three major credit bureaus once a year at AnnualCreditReport.com.

During the time leading to your mortgage applications, make sure to pay all your bills on time, don’t open new credit cards and work on paying down overall debt. A higher credit score will help you get approved quicker and it will net you a lower interest rate on your loan.

Another crucial factor in determining your eligibility for a mortgage is your debt-to-income ratio, or your DTI. Lenders want to know how big your collective outstanding debt will be in relation to your income if you receive the home loan. Most lenders will only allow a maximum DTI of 36%.

When should I apply for a home loan?

While you won’t need the loan until you are ready to close on a house, it’s a good idea to start the process before you begin house-hunting. Your lender will let you know whether you can expect to be approved for a loan and will provide you with an estimate of how much house you can afford so you don’t face disappointment later.

When initially applying for a home loan, ask your lender for a letter of pre-approval. This letter confirms you are pre-approved for a home loan up to a specific amount. Having this letter in hand shows real estate agents and sellers that you are serious about buying. Most pre-approvals are only good for 60-90 days, so make sure you’re ready to start house hunting before you get yours.

How do I apply for a home loan?

To apply for a home loan at Destinations Credit Union, visit our First Mortgage Center online – you can get information, speak to a Loan Officer or apply online. Make sure all of your financial paperwork is in order and hold onto all important financial documents in the months leading up to your application.

To make it easier, we’ve created a list of the information and documents you’ll need:

  • Name of current employer, phone and street address
  • Length of time at current employer
  • Official position/title
  • Salary including overtime, bonuses or commissions
  • Two years’ worth of W-2s
  • Profit & loss statement if self-employed
  • Pensions and Social Security check stubs
  • Proof of child support payments
  • Copies of alimony checks
  • Statements for all checking and savings accounts
  • Investments (stocks, bonds, retirement accounts)
  • Proof of any gifted funds from relatives
  • Car loan information

You will also need to explain any blemishes on your financial record; including bankruptcies, collections, foreclosures and delinquencies.

If you’re ready to apply for a home loan, visit our First Mortgage Center online.  We’re completely committed to your financial success.

Your Turn: How did you prepare for a home loan application? Share your tips with us in the comments.

SOURCES:
https://www.thebalance.com/before-you-get-a-mortgage-315700

https://www.rubyhome.com/blog/mortgage-loan-process/
https://thelendersnetwork.com/what-is-mortgage/

Should I Be Concerned About Rising Mortgage Rates?

On June 13th, the Federal Funds Target rate was officially raised by .25%. This increase Two women reviewing loan documentsmarks the second time interest rates were raised in 2018 and experts expect another two increases this year.

The rate increase was prompted by optimistic feelings about the general state of the economy. The Fed pronounced the economy to be rising at a “solid rate” and claimed that inflation rates are close to their target goal of 2%. Most notably, unemployment rates have dropped to just 3.8% in May, 2018, tying with April 2000 for the lowest rate since 1969.

While this might be good news for the economy, all these indicators point to rising interest rates-and that might not be the best news for current and hopeful homeowners.

Is it a good time to buy a house? Should you choose an ARM or a fixed-rate mortgage? If you’re a homeowner, should you be taking any action now?

So many questions-and we’ve got answers! Read on for what you need to know about the rising interest rates and what it all means for you.

What you can expect for the rest of the year

Here’s what experts anticipate for the remainder of 2018:

  • More market increases. The fed is expected to raise interest rates again at their meetings in September and December.
  • A healthy economy that keeps growing. With unemployment rates at record lows and the recent tax cuts keeping the economy strong, business is booming across the country. Hiring is up and firing is down. If you’re an employee, you can anticipate a raise in 2018 and the security of a job you can hold onto for years.
  • More homeowners choosing to stay put. In 2017, U.S. homeowners gained $1 trillion in equity. This means most homeowners are now sitting on newfound wealth. It now makes more sense for them to tap into their home’s equity to fund renovations on their homes instead of going through the hassle and paying the costs of a move. Cash-out refinances, in which the homeowner takes out a bigger mortgage and pockets the difference in cash, will be especially popular. When homeowners stay put, it can create a tighter housing market which can make prices rise.

Why a healthy economy means higher mortgage rates

When the economy is thriving, inflation increases. This causes investors to seek higher returns for their investments. The only way to keep investors interested in mortgage bonds when the economy is booming is to raise interest rates on mortgages.

It’s more that, though. The Feds want to keep inflation stable so that it doesn’t spikesuddenly and trigger a market panic which can lead to a crash or a recession. By gradually increasing interest rates, they can keep the economy growing at a steady, stable pace.

What do mortgage rates look like now?

Mortgage rates have already surpassed predictions set by major housing agencies at the end of 2017. As of August 1st, 2018, mortgage rates are hovering between 4.5% and 5% and are not expected to drop anytime soon. If anything, they’ll only continue rising throughout the rest of the year.

If you’re a homeowner

If you own a home and haven’t yet locked in your interest rate, now is the time to do so. Rates are only going to continue climbing and you want to get the best interest rate for your mortgage before it gets too expensive to handle.

If you haven’t already, consider refinancing your existing mortgage to one with a lower interest rate.

If you’re in the market for a home

House prices have soared over the last seven years. According to the National Association of Realtors, the average price tag for a home is now $264,800, up by almost 100K from 2011. When you adjust these numbers for inflation, house prices have seen a 33% increase in seven years.

If you’re house-hunting now, don’t pay more for your mortgage than you absolutely have to.

Housing agency Freddie Mac urges new-homeowners to shop around before choosing a mortgage. Get as many quotes as you can, do your research, and make some more phone calls. You do it before every other major purchase; why not shop around when it comes to a decision that will affect your monthly mortgage payments for years?

“One additional mortgage quote could save you $1,500 over the life of your loan,” Freddie Mac shares. “Five quotes could save $3,000.”

It’s also a good idea to consider an adjustable-rate mortgage (ARM). ARMS are 30-year loans that have fixed rates for a specified amount of time, usually 3-7 years. Rates will then change according to national rates. When mortgage rates are rising, ARMs are usually priced more reasonably than fixed-rate loans. 30-year fixed rates, now priced up to 5%, hovered in the high 3s throughout 2017. ARMs are now in the same range.

ARMs can give you a fixed, stable payment for up to 7 years. After the initial period, they can be adjusted just once a year-and there are limits to how much the rate can be increased.

Considering a refinance? Shopping for a mortgage? Don’t forget to call, click, or stop by Destinations Credit Union today to learn about the mortgage products we have available for you.

Your Turn: Have you taken any action in response to the Fed’s interest rate increase? Share it with us in the comments!

SOURCES:
https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional

https://www.bloomberg.com/news/articles/2018-06-20/fed-s-powell-says-case-for-gradual-rate-hikes-remains-strong
https://www.nar.realtor/research-and-statistics/housing-statistics
https://www.forbes.com/sites/advisor/2018/06/19/fed-now-hinting-at-four-potential-rate-hikes-in-2018/#20c2283f2d6a
https://www.nerdwallet.com/blog/mortgages/adjustable-rate-mortgage-good-bad-idea-rates-rise/

Rising Interest Rates

If you follow the national business news, you are likely getting mixed messages about thenewspaper with interest rate headline state of the economy. While never very reassuring, pundits’ opinions on the stock market and the country’s economic state are changing as frequently as the weather.

But there’s one area that’s been constant for some time now: rising interest rates. If you’re thinking of taking out a mortgage, or any other large loan, in the near future, you might be waiting until those rates start going down again.

Here’s why that might not be the best idea.

Interest rates will continue to rise throughout 2018.

Experts predict that interest rates on financial products will continue to increase throughout the year. There are several factors triggering this rise, none of which are likely to be resolved anytime soon. Whether you’re interested in taking out a personal loan or a second mortgage, 2018 may not be a very good year for borrowers.

It’s not looking too great for those who are looking to take out short-term loans either. The U.S. central bank raised short-term interest rates a total of three times in 2017, and that trend is expected to continue. Experts claim 2018 will see an additional three interest rate hikes, each being 0.25%. If you need to borrow money from Destinations Credit Union, it’s best to consider your plans sooner rather than later to ensure you can lock in before rates get higher.

The inflation factor

Unemployment rates may be down across the country, but wage growth continues to crawl at an almost nonexistent pace. This, in turn, leads to limited price growth, which keeps the inflation rate stagnant. However, the feds are expecting all of this to change in the coming year. They expect wage growth to finally kick off and then set in motion an uptick in inflation and price growth.

The government wants to stay ahead of any surge in inflation. It does so by increasing interest rates even before there is clear evidence of an inflation peak. In fact, just last month, the feds raised interest rates on short-term loans yet again, citing an inflation scare at the beginning of February as the primary factor behind their decision.

Financial institutions and credit card companies pattern their own interest rates after the government’s rate. For this reason, it’s best to work on aggressively paying down outstanding debt you have before you’re hit with increased interest rates.

Government deficits and tax cuts

Long-term interest rates have been rising since December. This is largely due to the growing government deficit linked to recent tax cuts. The pending two-year budget plan will put the government even deeper into the red and likely cause those rates to climb even higher.

In short, this trend of rising rates will not become history for a long while.

Mortgages

Mortgage interest rates are now at an all-time high; they are currently close to 4.6% and are up more than 20% from a year ago.

There are multiple factors driving this increase, including the administration’s proposed tariffs on steel and aluminum and the associated concerns over the U.S. trade market.

For the most part, though, mortgage interest rates are based on the 10-year Treasury yield. When bond yields rise, so do mortgage rates. The recent tax overhaul caused investors to favor stocks over bonds, and consequently mortgage rates have been climbing since the tax plan was first introduced in September.

Some experts are actually predicting a turnaround for mortgages in 2018. They are hopeful that the expected volatility in the yield curve will trigger a similar curve for mortgages, possibly even causing them to dip below 4% sometime this year. However, all agree that by year’s end, the mortgage rate will settle at a stable 4.5%.

No one can be certain of anything, though. And waiting until the rates drop might prove to be pointless. In fact, you might even end up paying a higher rate because of that delay.

The good news

Take heart; it’s not all doomsday forecasts on the economic front!

Greg McBride, Bankrate’s chief financial analyst, predicts a great year for returns on savings. He claims that 2018 will be beneficial for all savings accounts, and especially for CD holders, with an average one-year CD yielding a 0.7% return by the end of 2018.

If you’ve been thinking about opening a share certificate or other ways to grow your savings, talk with Destinations Credit Union, and start putting your plan into action!

What it means for you

Let’s review the practical steps you can take in this economic environment:

1.)   If you’re thinking of taking out a mortgage or another long-term loan, don’t wait for rates to decrease; it isn’t likely to happen anytime soon.

2.)   Try to pay off your debt at a quicker pace than you’ve been doing until now to avoid getting hit with rising interest rates.

3.)   2018 is a great time to increase your savings and to open a share certificate.

Volatile economy got you stressed? No worries! At Destinations Credit Union, we’re always here to help you through any financial turn. Call, click, or stop by today!

Your Turn: What steps are you taking in the current financial climate? Paying down debt? Increasing your savings? Tell us all about it in the comments!

SOURCES:
https://www.kiplinger.com/article/business/T019-C000-S010-interest-rate-forecast.html  

https://www.google.com/amp/s/www.bankrate.com/finance/mortgages/interest-rates-forecast.aspx/amp/  
https://www.google.com/amp/s/www.bankrate.com/mortgages/analysis/amp/ 

The Pros And Cons Of Bridge Loans

Buying your second home is nothing like buying your first. This time around, you’re bridge loancoming to the table with the experience of being a homeowner. You know what to expect throughout the buying process, you know what to look for in a home and you know what you can afford. After all, experience is truly the best teacher.

Another major difference this time around is that you’re likely counting on proceeds from the sale of your first home to help cover the down payment and the closing costs of your new home.

But what happens if selling that home is taking a bit longer than you’d anticipated? What if you need to move immediately because of a job opportunity, or because there’s a great home on the market that will be snatched up if you don’t grab it quickly? How are you going to come up with the funds if your own home isn’t selling quickly?

This is where bridge loans come in. A bridge loan provides temporary financing until more permanent financing can be obtained. When taking out a bridge loan, it’s understood that once permanent financing is in place, some of those funds will be used to pay back the bridge loan. Bridge loans are most commonly used to help the borrower span the gap between the sale of one home and the purchase of another.

Terms vary tremendously, so take the time to talk with your loan officer. Some will completely pay up the outstanding mortgage on the old home, while others will only pay off a portion of it, leaving the borrower with two mortgages, or simply lumping the loans together.

Bridge loans understandably have shorter terms than other loans, and are typically more expensive as well. Also, a lender will usually only extend a bridge loan if the borrower agrees to finance their new home’s mortgage through the same institution.

Bridge loans seem to provide the ideal solution to a less-than-ideal situation: You can now house-hunt freely and without waiting for your current home to sell. However, bridge loans are not as simple as they may seem.

Let’s take a look at some of the pros and cons of taking out a bridge loan.

Pros

1.) Freedom to house-hunt

The most obvious benefit of taking out a bridge loan is also the most significant. With this financing in place, you’ll be free to buy the home of your choice, without being bound by the sale of your previous home.

2.) Short lending term

Another big benefit of bridge loans is their short lifespan. Bridge loans usually run for six-month terms, though they can span anywhere from several weeks to several years. In contrast, most conventional loans are structured around a long payback term that can last for decades. The longer the payback term, the more likely it is that the borrower will suffer from a financial setback, which makes repayment challenging or impossible.

This, in turn, can give rise to further financial challenges as the borrower is hit with various penalties and fees, or is forced to take out another loan. The short payback term of bridge loans assures that this loan will not be a source of financial stress for years to come.

Cons

1.) Total debt increases

Any loan a buyer takes out will cause their total debt to climb. Sometimes, a bridge loan will split the purchase of the second home into two mortgages, leaving a buyer with three monthly mortgage payments; one from their previous home, and two from their new one. Other times, the buyer will be left with two mortgages to pay, which can also be a strain on their budget. In either case, an increase in debt means an increase in monthly financial obligations.

2.) High interest rates and fees

To compensate for their short lifespans and the amount of work the lender has to do for them, bridge loans generally have high interest rates, generally reaching between 8.5 – 10.5% of the total loan. There are also various fees involved, such as closing costs, origination fees and more.

3.) Risky contingency

Bridge loans are usually taken out with the understanding that the sale of your existing home will allow you to repay the loan. But what if your house doesn’t sell before the loan is due? This can happen even if you have an interested buyer – they may not get the financing they need or they may back out. This will leave you with a huge debt on your hands that you can’t afford to repay.

It’s important to speak to a Realtor about market conditions before taking out a bridge loan, even if you think you have a buyer. Make sure the odds are in your favor and that it is likely your home will be sold on time before committing to a loan that is contingent on its sale.

If you really need the funds from the sale of your home before the transaction is finalized, but the thought of taking out a bridge loan makes you uneasy, you may want to consider other options. You can take out a HELOC, borrow against a 401(k) plan or take out a loan secured by stocks, bonds or other assets.

And of course, don’t forget to call, click, or stop by Destinations Credit Union for guidance throughout the process of buying and selling a home.

Your Turn: Have you bought a second home recently? How was the purchase different than your first time around? Share your experience with us in the comments!

SOURCES:
http://www.bankrate.com/finance/mortgages/bridge-loans-ease-the-transition-from-one-home-to-another-at-a-cost.aspx 
https://en.m.wikipedia.org/wiki/Bridge_loan 
https://www.thebalance.com/what-are-bridge-loans-1798410 
http://m.finweb.com/real-estate/the-pros-and-cons-of-bridge-loan-financing.html