Depends If You Can Afford It

Affordability, stability and flexibility are the three reasons homebuyers overwhelmingly choose a 30-year term. The payments are lower, it’s easier to qualify for the mortgage than when the term of the loan is shorter, and they can always make additional principal contributions.

However, for those who can afford a higher payment and commit to a 15-year term, there are three other reasons for going with the shorter term: a lower mortgage interest rate, building equity faster, and the debt is paid off sooner.

The 30-year, fixed-rate mortgage is the loan of choice for first-time buyers who are more likely to use a minimum down payment and are concerned with affordable payments. For a more experienced buyer who doesn’t mind and can qualify to make larger payments, there are some advantages.

Consider a $200,000 mortgage at 30 year and 15-year terms with recent mortgage rates at 4.2% and 3.31% respectively. The payment is $433.15 less on the 30-year term but the interest being charged is higher. The total interest paid by the borrower if each of the loans was retired would be almost three times more for the 30-year term.

Let’s look at a $300,000 mortgage with 4.41% being quoted on the 30-year and 3.84% on the 15-year. The property taxes and insurance would be the same on either loan. The interest rate is a little over a half a percent lower on the 15-year loan, but it also has a $691.03 higher principal and interest payment due to the shorter term.

The principal contribution on the first payment of the 30-year loan is $401.56, but it is $1,235.09 on the 15-year loan. The mortgage is being reduced by $833.53 more which exceeds the increased payment on the 15-year by $142.50. Interestingly, over three times more is being paid toward the principal.

Some people might suggest getting a 30-year loan and then making the payments as if they were on a 15-year loan. That would certainly accelerate amortization and save interest. The real challenge is the discipline to make the payments on a consistent basis if you don’t have to. Many experts cite that one of the benefits of homeownership is a forced savings that occurs due to the amortization, while renters will not necessarily adopt a parallel habit of voluntarily setting aside a similar amount of money.

Use this 30-year vs. 15-year financial app to compare mortgages in your price range. A 15-year mortgage will be approximately half a percent cheaper in rate. You can also check current rates at FreddieMac.com.

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Do You Know the Way?

Fear of the unknown is common among all ages. Kids, at night imagine monsters in their closets or under their beds and adults are unsure of what the future might bring.

It may be natural for first-time buyers to be unsure of the process because they haven’t been through it before, but even repeat buyers need to know changes that have taken place since the financial housing crisis.

The steps in the home buying process are very predictable and generally follow the same pattern every time. It certainly makes the move stay on schedule when you know all the different things that must be done to get to the closing.

  • In the initial interview with your real estate professional you share the things you want and need in a home, the time-frame within which you want to move and your essential motivation for making it, and you discuss available financing and learn how your agent can represent you in the transaction.
  • The pre-approval step is essential for anyone using a mortgage to purchase a home to assure that they’re looking at the right price of homes and so they’ll know the price range they can qualify for and what the interest rate will be. And because the Seller will expect a written financing pre-approval to be submitted along with the purchase offer.
  • Even with lower than normal inventory, it is difficult to stay up-to-date with the homes currently for sale and those brand new on the market. Technology has simplified this process, but the buyer needs to implement them and recognize that all online consumer portals have varying degrees of inaccurate information.
  • Showings can be accommodated online through virtual tours, drive-bys and finally, a personal tour through the home. Your real estate professional can work with you to see all the homes in the market available through other REALTORS®, builders or for sale by owners.
  • When a home has been identified, an offer is written and submitted on a contract form and negotiation over price, terms and contingencies stakes place.
  • A contract is a fully negotiated, completely signed and initialed final agreement.
  • Escrow is opened to deposit the earnest money from the buyer as a sign they’re acting in good faith. The title search is also started so that clear title can be conveyed from the seller to the buyer and so that the lender will have a valid lien on the property.
  • 88% of home sales involve a mortgage. The lender will require an appraisal to be sure that the home can serve as partial collateral for the loan. If the buyer has been pre-approved, the verifications will be updated to be certain that they’re still valid. The entire loan package when completed, is sent to underwriting for final approval.
  • As soon as the contract is agreed upon, at the same time the title search and mortgage approval are being worked on, the buyer and buyer’s agent will arrange for any inspections that were called for in the contract.
  • After all contingencies have been satisfied and the buyer’s lender’s verification processes and underwriter requirements have been met , the parties to the contract (and typically their respective agents) go to closing where all required documents are signed (the bulk of which are provided to the settlement agent by the buyer’s lender), and the balance of the buyer’s money is paid. This is the time and place when title actually transfers from the seller to the buyer.
  • Possession occurs according to the sales contract. Most commonly the house keys are delivered by sellers to buyers upon completion of the closing.

One of the responsibilities of your real estate professional is to make sure that things are done in the appropriate sequence and on schedule so that the transaction will close according to the agreement as planned and without avoidable or unnecessary problems.

Even if you’re not ready to buy or start looking yet, assembling your team of professionals comfortably in advance of the need for them is wise. Let me know and I’ll send you my recommendations, so you can read about them on their websites and/or contact them (or me) with any questions it prompts.

You may want to download this Buyers Guide and call me at (316) 337-5154; I’m happy to help, it’s what I’m here for. Well-informed buyers lead to satisfied homeowners, more involved citizens and sounder communities. And that is better for everyone concerned.

When It’s Important…Find the Facts

Most parents don’t put a lot of credence in the statements “Everyone is doing it” and “No one does that anymore.” They’ll dig a little deeper and get the facts of the situation. Interestingly, when it comes to buying a home, similar common myths continue to prevail surrounding what it takes to buy a home.

One of the most common myths is that it takes 20% down payment to get into a home. Certainly, an 80% mortgage might have the most favorable interest rate. It won’t require mortgage insurance and qualifying requirements will probably be a little less stringent, but there are alternatives.

Per the 2018 NAR Profile of Buyers and Sellers: “88% of all buyers financed their homes last year and consistent with previous years, younger buyers were more likely to finance their home purchase. In 2018, the median down payment was 13% for all buyers, 7% for first-time buyers and 16% for repeat buyers.”

  • Qualified Veterans are eligible for zero down payment, 100% mortgage loans without mortgage insurance.
  • Conventional loans are available with as little as 3-5% down payments with mortgage insurance required.
  • FHA mortgages have a 3.5% minimum down payment requirement with mortgage insurance required.
  • USDA mortgages for rural housing have two major products: one does not require a down payment and the other has a 3% down payment. Maps, based on population numbers, are available to determine if the area you’re interested in purchasing in is eligible for a USDA mortgage.

We’ve come to believe that facts can be instantly verified by searching on the Internet. Unfortunately, there are a lot of things on the Internet that are questionable and certainly, that includes some information on mortgages. Specifically, some loans are not available in certain areas and/or to some persons based on their income or credit history.

The best approach, when it comes to buying a home, is to get the facts from a knowledgeable and trusted loan professional before you begin the home search process. Contact me at (316) 337-5154 for a recommendation. Available mortgage programs are not one-size fits all and one mortgage professional may fit your specific needs and personality better than another.

A website may not provide relevant information for your individual situation. Purchasing a home is a large investment and taking the time to find out the facts is worth the effort.

Your Real Estate Resource

Being a better homeowner is a full-time job. It takes good information to make good decisions not only when you buy and sell, but through all the years you own a home.

Think of times when you need advice on financing, taxes, insurance, maintenance, finding reasonable and reliable contractors and lots of other things. Imagine how nice it would be to have a real estate information line you could call whenever you have a question.

My objective is to move from a one-time sale to customers for life; a select group of friends and past customers who consider me their lifelong real estate professional. I believe that if I help you with all your real estate needs, then I can earn that privilege.

Throughout the year, I’ll send reminders and suggestions by email and social media that enhance your homeowner experience. When I find good articles to help you be a better homeowner, I’ll pass them along. We’ll discover new ways to maintain your property, minimize expenses and manage debt and risk.

I want to be your “Go-To” person for everything to do with real estate. I’m here for you and your family and friends…now and in the future. Please let me know how I can help you.