Archive for November, 2022

7 Ways You Can Beat High Interest Rates As A Brooklyn Homebuyer

Tuesday, November 15th, 2022

Brooklyn hombuyer surprised by high interest rate

As a Brooklyn homebuyer, you know it is no secret that mortgage interest rates have been rising through 2022. Although that sounds like bad news, there are still ways you can lower your interest rate on your new home.

Although mortgage rates have doubled since the beginning of the year, they are nowhere near the historical high of October 1981, when they peaked at 18.45%. However, that may not be comforting to you if you could not take advantage of the historically low rates.

Still, homeownership typically wins out over renting in the long term. If you are not sure whether you should rent or buy, take some time to read our previous blog post, “Should You Buy Or Rent In The Brooklyn Real Estate Market?”

If you are now in the market to buy a home, there are some things you can do to ensure you receive the best rate possible. 

Improve Your Credit

Your credit score significantly affects your ability to finance a home and the interest rate a lender will offer you. A strong credit score gives the lender greater confidence that you are a reasonable risk and that you use your credit wisely. The better your credit score, the more favorable the loan terms you will receive.

The number one thing you can do is to make your payments on time and in full each month. Credit history makes up approximately 35% of your credit score. This CNBC article discusses all the factors involved in calculating your credit score. 

The credit utilization ratio is another factor that can affect your credit score. Essentially, you only want to use some of the credit available at any time. 

Keeping older credit accounts open can also boost your credit score. On the other hand, having too many credit inquiries within a limited time frame can negatively affect your score. 

It is wise to monitor your credit score and handle any issues that may arise as soon as possible. There are plenty of apps available that can help you monitor your credit.

Mortgage Broker VS Bank

Mortgage brokers source loans from a variety of lenders. They are the go-between for financial institutions and homebuyers. The broker will collect and verify all the information required by the borrower to complete the home purchase and work with both the borrower and the lender.

They may be able to find a better rate than working directly with a bank, although a borrower can certainly work directly with a bank. A mortgage broker can discover various loan options for a borrower, saving the legwork needed.

A Brooklyn homebuyer with some credit challenges may find more flexible lenders through a mortgage broker.

Be careful when you are evaluating the offers a mortgage broker provides you. Depending on their sources, they may not be able to offer a better deal than working directly with a bank. Some lenders will not work with mortgage brokers and may be able to provide you with a better deal. 

Shop Lenders

With the rise in interest rates, the number of people buying and refinancing has decreased. As a result, lenders are more likely to compete for your loan now than they were a year ago. 

When comparing lenders, remember that you are comparing interest rates, the lender’s fees, and the amount of cash you need. The fees are origination fees, points, mortgage insurance premiums, and 3rd party fees. First, ask for an estimate of the monthly payment and total closing costs. Then, compare each lender’s estimate. 

Finding the right mortgage is as important as finding the right home. Mortgages are a long-term commitment, and leaving money on the table is never desirable. Work with reputable people that you trust.

Purchase A More Affordable Home

The interest rate affects the maximum amount you can borrow for your mortgage. The lender you choose will calculate your total monthly payment for the loan principal, interest, taxes, and insurance. Therefore, the higher the interest rate, the less principal you can afford. As a result, you may have to lower the price range of the homes you want. A starter home or fixer-upper is a good option because you will begin to increase equity in your investment. Later, you can roll that equity into a larger home if needed.

Make A Larger Downpayment

A larger downpayment can make a difference in the price of a home you can afford and the terms of your mortgage. In addition, your interest rate may be lower with a larger downpayment which saves on the amount of money you pay in interest over the life of the loan. 

Lenders require private mortgage insurance when the borrower’s downpayment is less than 20%. Once the borrower reaches 20% equity in the home, they can cancel their private mortgage insurance.

When saving for a home, you need to consider the downpayment, closing costs, and an emergency fund for repairs after you close your house. If you do not have an emergency fund when you purchase a home, you may be in a bad financial situation should anything go wrong in the house.

You will also need to consider the time you expect to live in your new home. A larger downpayment is more beneficial for the long term. However, the larger downpayment may not make sense if you do not plan to stay in the house for long.

Buy Down Your Rate With Points

Buying down your mortgage interest rate should be carefully examined to see if it makes sense for you. You pay a one-time fee upfront for discount points or mortgage points. Each point costs approximately 1% of the loan amount. Generally, each point reduces the rate by .25%. 

For example, a Brooklyn homebuyer needs to apply for a mortgage of $300,000 and purchase one discount point at the cost of $3,000. Say the going interest rate is 6.5%; after buying that one discount point, they would pay 6.25% interest on the loan.

Sometimes a builder or seller will offer to pay discount points to buy down your mortgage rate. However, suppose you are considering buying down your mortgage interest rate. In that case, you must remember that you have to have enough cash for a downpayment, closing costs including discount points, and reserve savings.

Analyze the breakeven point or the amount of time it will take you to recoup the cost of the discount points needed to lower your interest rate. Simply divide the cost of the discount points by the amount you will save each month at the lower rate. If you think there is a chance you would be selling the home or refinance it before the breakeven point, it may not make sense for you to buy down the interest rate.

Assume An Existing Mortgage

A Brooklyn homebuyer takes over a home seller’s loan when they assume an existing mortgage. Not all types of mortgage loans are assumable. The buyer must qualify for the mortgage. A cash downpayment is needed to cover the difference between the sales price and mortgage balance. 

Assumable mortgages are a good option for a Brooklyn homebuyer if the original loan’s interest rate is less than the current interest rate for a new loan. You can save money long-term because you are borrowing less over a shorter period than with a new mortgage. 

FHA, VA, and USDA loans are usually assumable, but conventional loans are not. In addition, government-backed loans regulate the closing cost on assumed mortgages, which may save you money.

Qualifying for an assumable loan is similar to qualifying for a new mortgage. You must complete a loan application and provide all the required supporting documentation. A mortgage underwriter will pull your credit and verify your information to determine if you meet the credit requirements. They will also need to confirm that you have adequate funds to pay for the closing costs and downpayment.

As a Brooklyn homebuyer, you must determine which options work best for you. Do your homework, and work with professionals who understand the pros and cons of each to get the best advice. You can not control the interest rates, but you may be able to find a strategy that works in your favor.
Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate, if you are considering buying a home. As a Brooklyn real estate agent with over 35 years of experience, I know the local area, market trends, and available resources. Reach me by phone at (718) 253-9500 ext. 1901 or by email at [email protected].

Charles D'Allesandro

Should You Buy Or Rent In The Brooklyn Real Estate Market?

Tuesday, November 1st, 2022

With so many changes in the Brooklyn Real Estate Market, many ask if they should buy or rent. Unfortunately, there isn’t a clear-cut answer; it depends. Sometimes a person should rent, but most often, home ownership has many more benefits and advantages.  

Whether you buy or rent now depends on your financial situation and personal goals. If you have saved for a downpayment , have an emergency fund, and are comfortable with the total monthly cost of purchasing a home, now could be the right time for you to buy. Realtor.com offers a rent versus buy calculator to help you determine if it makes financial sense for you.

Homeownership is one of the best ways to build wealth. If it feels right to you financially as well as personally, buying a home may be the best option for you. 

There are advantages and disadvantages to buying a home and the same goes for renting. Understanding the advantages and disadvantages of each will help you prepare for the type of housing that is right for you. 

What are some advantages of buying a home?

More Stable Housing Costs

Rent payments can be unpredictable and typically rise yearly, but most mortgage payments remain unchanged for the entire loan period. If the taxes go up, the increase is usually gradual. This stable housing cost is significant in times of inflation when renters lose money and owners make money.

Tax Advantages

Homeowners can be eligible for significant tax savings because they can deduct mortgage interest and property taxes from their federal income tax. However, this can be a considerable amount initially because the first few years of mortgage payments are made up mostly of interest and taxes.

Equity

Instead of payments disappearing into someone else’s pocket, homeowners are building equity in their homes. A home purchase is often one of a person’s most significant investments.  Each year that you own the home, you pay more toward the principal, which is money you will get back when the home sells. It is like having a scheduled savings account that grows faster the longer you have it. If the property appreciates, and generally it does, it is like money in your pocket. And you are the one who gets to take advantage of that, not the landlord. You can then use this equity to plan for future goals like your child’s education or your retirement.

It is Yours!

When you own a home, you are in control. You have the freedom to decorate it and landscape it any way you wish.  If you would like, you can have a pet or two. No one can pop in and inspect your home and threaten to evict you. 

What are some disadvantages of buying a home in the Brooklyn real estate market?

Fixed Location

Homeowners can’t move as easily as a renter who just has to give notice to the landlord. Selling a house can take more time. If you are a travel buff, taking off for parts unknown may be in your blood. How does six months of traveling Europe sound? If you own a home, you will need to sell or rent your home depending on your plans and the length of time you desire to travel. The same goes for a work-related relocation. You may need to sell or rent your home to move to a new location.

Additional Expenses

Your monthly expenses may increase, depending on your situation. As a homeowner, you will pay more for a homeowner’s insurance policy than a renter’s insurance policy. If you are in a flood zone, you may need to pay for an additional flood insurance policy. Other expenses may include a Homeowner’s Association fee, property taxes, all the utilities, and all the maintenance and upkeep costs for the home.  Often you need to supply appliances that were furnished with a rental.

Repairs

You are your own landlord when you own a home. When repairs are needed, it is your responsibility to either make the repairs yourself or hire a professional to do the work. As a renter, you may experience some inconvenience by the repair, but the landlord is responsible for fixing it.

There are also advantages and disadvantages of renting a home. Before you sign a lease, consider the following:

Advantages of renting include:

Ease of Mobility

Depending on the terms of your lease, it may be easier to give notice or get out of your lease. If you have to relocate for a job, or a travel adventure you may be able to move ahead faster.

No Maintenance

Rarely is a renter responsible for repairs and maintenance under the terms of a lease. If something goes wrong you can simply call the landlord. You may face a slight inconvenience to let in a repair person, but you don’t have to pay the bill.

Less Expense

Since you are not purchasing the lease, you will need a smaller security deposit as opposed to a large downpayment. Renters insurance is less expensive than homeowners insurance because you are only covering your belongings and not the building. 

The disadvantages of renting include:

Rent Increases

Your landlord is in the game to make money. Therefore, you can expect increases because you are located in a popular location, inflation, competition or rising property values on a yearly basis.

No Financial Benefits

As a renter, you will not be able to take advantage of the tax benefits of homeownership. You will not have equity in the property or profit from the property appreciation. So although you are paying monthly rent you are not making any financial gains.

Buying a home is an important decision. It is often the largest purchase a person makes in their life. Homeownership comes with some increased responsibilities that aren’t for everyone.

When considering home ownership in the Brooklyn real estate market, you need to weigh the advantages and disadvantages for yourself.  Likewise, if you are like most people, you will find that homeownership is worth the risks and drawbacks. 

Take the time to think through the options before you commit to buy or rent. Be sure you thoroughly understand what works best for your financial situation and lifestyle preferences.

Some helpful questions to ask when considering if your are ready to buy are:

  1. Have you saved enough money?
  2. Is there a chance of a work relocation in your near future? 
  3. If you were relocated would you need to sell your home or keep it as an investment/rental property? 
  4. Will you qualify for a mortgage? 
  5. Can you afford the extra costs of homeownership?
  6. Are you ready to become a homeowner?

The first step to buying a home is to speak with a mortgage lender. They will review your finances and determine a maximum mortgage amount. Once you know the amount of mortgage you can qualify for and are comfortable with the monthly payment you can begin looking at homes.

If you are a first-time homebuyer you may want to read this previous blog post for some homebuying tips. Find a trusted, knowledgeable real estate professional who can help you through every step of the home buying process in the Brooklyn real estate market.

Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate, if you are considering buying a home. As a Brooklyn real estate agent with over 35 years of experience, I know the local area and market trends. Reach me by phone at (718) 253-9500 ext. 1901 or by email at [email protected].

Charles D'Allesandro