NEW HAVEN, Conn. (WTNH) – As the summer real estate season continues to heat up and interest rates are still at lower levels, more home buyers are on the hunt for a mortgage. But which loan is right for your home? John Holt, President and CEO of Nutmeg State Financial Credit Union, stopped by our studio to break down everything you need to know.
How does a Credit Union differ from a traditional bank for mortgage loans?
- A Credit Union is a member owned, not-for-profit, financial institutions. Because of this we are able to return profits to their members in the form of excellent rates, programs and services.
- Many Credit Unions offer all of the banking services including mortgages that you would expect to find in any institution.
What are some things potential home buyers should do before applying for a mortgage?
- Order a copy of your credit report and check it for accuracy. You can obtain a free yearly credit report by visiting annualcreditreport.com.
- Dispute then clear up any discrepancies.
- Your credit score can determine your mortgage interest rate.
- Work with a mortgage specialist to determine the amount of a home loan you can qualify for.
Is there a minimum down payment for a home?
- Depending on how you are obtaining the money, the down payment can be low, sometimes only around 3%. You can use a variety of assistance loans as well from other institutions such as a VA loan if you were in the military, or a First Time Home Buyer Down Payment Assistance loan if you qualify. Just remember that those payments are on top of your mortgage payment as well to pay back the down payment. You will also have to pay PMI (or Private Mortgage Insurance).
- By putting down at least 20% you can avoid PMI that will be added to monthly payment.
- It can be removed after payments have totaled that 20% but many people forget or don’t realize they can ask to have it removed. This can decrease your monthly payments, so it’s smart to keep an eye on how much you have paid.
If you already have a mortage how can you determine if it’s the right time to refinance?
- If you are considering refinancing, use a tool like our Home Owner Analysis to determine how much you could save to make sure it’s worth it. One of our staff representatives can assist.
- Calculate the break-even point — the time it will take for the mortgage refinance to pay for itself. For example if your new mortgage saves $100 per month and you paid $3,000 in closing costs it will take 30 months to break even. Depending on the length of the loan, sometimes you can avoid closing costs. For instance, Nutmeg offers a Homeowners Express mortgage to help people pay of their mortgage in just 8 to 12 years. This has no fees or closing costs. Refinancing your mortgage should SAVE you money, and that’s what we’re here to do!
- Another thing to remember is that your existing lender may have a pre-payment penalty.
How do you choose which type of home loan is right for your situation?
- Whether you are looking to purchase your first home, a vacation home or are looking to refinance, your mortgage broker should work together with you to identify which type of mortgage will best suit your needs.
- You can choose from three main types of loans: conventional, FHA and special program loans. Conventional loans typically come from a bank or credit union and aren’t part of a specific government program. FHA loans are insured by the Federal Housing Administration, allow for smaller down payments and are available to people with lower credit scores. The government also runs special programs for various groups, such as VA loans for veterans or U.S. Department of Agriculture loans for people living in rural areas.
- Bottom line…Choosing a mortgage is a complicated decision. Although your interest rate is important, you should take other factors into account, such as how long you plan on staying in your house and what kind of loan you want. Also, it’s best to shop around for mortgages to find the best rate and a lender that you trust.
Is there a general rule about when an adjustable rate is the best choice?
- Fixed rate mortgages are often the most popular choice as many like to know exactly what their payments will be. But adjustable is an option to consider depending on your situation.
- Pros of an Adjustable Rate Mortgage:
- Lower interest rate in the beginning: The rate can be one percent lower or even more than that compared to fixed rate mortgages. With a lower rate, your payments are lower.
- Appeals to the more mobile borrower: If you need to move away for your job or want to sell the house before the introductory period of your ARM ends, then you have enjoyed a lower rate without having to refinance to a fixed-rate mortgage or dealing with the adjustable rate going higher.
- Need the loan for a short period: If you are a house flipper or someone who is developing a rental house, then an ARM could be a good choice. The rate is low helping you to have low payments while the remodeling takes place.
- Cons of an Adjustable Rate Mortgage
- Scary not knowing: Your interest rate rises when the market rates increase. Sometimes the stress of not knowing is too much for some people to handle.
- Refinancing costs: If you plan on only have an ARM for a while and hope to refinance, remember that refinancing also has closing costs and other fees that can add up.
- Budgeting becomes more difficult: Since you won’t know how much your monthly payment will be if your interest rate fluctuates regularly, it’s going to be
a little tougher to figure out your finances.
What are the current home loan rates?
- The rates are always fluctuating, but right now the average rate for a 30 year loan is 3.7, just under 4%
Explain how points work when applying for a mortgage…?
- Many mortgage companies and banks will offer a lower interest if you pay a percentage otherwise known as points up front.
- Sometimes paying a few points can save thousands over the life of the loan if you plan on staying in the home for a long time.
Where can our viewers go for more information? www.nutmegstatefcu.org