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Rates drop and what it means for you

September 29th, 2019 8:32 PM by Sam Kader

The average interest for 30-Year Fixed-rate mortgages is still below 4%. The fact that this swoon in rates has occurred and predicting future rates is nearly impossible, homeowners and potential home buyers should take full advantage of it.  Here's what lenders would review in either a purchase or a refinancing scenario: 

  1. FICO score. Borrowers should aim for a credit score of over 740 for best rates. For every 20 point decrease in credit scores, the interest rate increases by about 0.125%. 
  2. Debt-To-Income (DTI) ratio. In general, Conventional maximum DTI is 50% and FHA/VA is 57%. 
  3. Loan-To-Value (LTV) ratio. Borrowers should aim for 75% LTV for optimum rates and an appraisal waiver. However, we can assist you with as little as 3% in down payment
  4. Employment history. In general, we want to capture the most recent 2 years of employment. However, for recent college graduates, we will accept your job offer letter as proof of employment. If you are employed in gig economy - we need to show steady and profitable Net Income (NOT Gross Income) on Tax Returns for the most recent 2 years to be counted. 
Here are 5 scenarios why you should refinance now.  

  1. When rates drop by about 0.5% to 1% or when the Total Refinancing Costs/Monthly Savings = Breakeven Month. If you are planning to stay put beyond the breakeven month - then you should refinance. (Only factor in non-recurring expenses into total refinancing costs in above equation). 
  2. When current mortgage has Private Mortgage Insurance (PMI) and the house value has increased so that there is at least 20% equity. Not only you will lower interest rate but also knocks out monthly PMI payments. Refinancing from FHA to Conventional loan is a good example of PMI removal. 
  3. When you need cash to start home improvements. Homeowners can tap their equity while reducing their interest rate with Cash-Out refinance. 
  4. When you have an Adjustable Rate Mortgage (ARM) and your rate is about to re-set to a higher rate. 
  5. When you want to remove or add a borrower. A quit-claim will add or remove a person from title but not with a lender. 
You do not have to start over again with a 30 Year-Fixed We offer 29 to 15 Year Fixed and anything in between. Here's more tips on refinancing

For those who are hoping to lock in for a better rate but are not quite ready yet - I always recommend a road map for a better position down the road. This includes: 

  1. Paying down debt. 
  2. Saving money for down payment or emergency funds. By boosting your own finances, you'll also be boosting your credit worthiness. 
  3. Review credit report for any error or mistakes
Your interest rate is a reflection of your financial situation and banks tend to reward low-risk customers with better rates. 


Posted by Sam Kader on September 29th, 2019 8:32 PM

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