How to Secure a Low Mortgage Rate in a Challenging Market

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Scoring a low mortgage rate is crucial for many potential homebuyers, especially as homeownership becomes increasingly difficult to attain. According to the Mortgage Bankers Association (MBA), mortgage applications decreased by 2.3% for the week ending April 26, 2024.

“Inflation remains stubbornly high, which is convincing markets that rates, including mortgage rates, will stay higher for longer,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “This is a significant challenge for the housing and mortgage markets, with the 30-year fixed mortgage rate rising to 7.29% last week, the highest level since November 2023.”

High mortgage rates are pushing buyers out of the market and causing some to back out of deals. Home purchase cancellation rates hit 16.3% in September 2023, the highest since October 2022, according to Redfin. It remains a tough market for first-time buyers, says Ralph DiBugnara, a senior vice president at Cardinal Financial.

“I’m seeing some buyers pull out of the market because they can no longer afford a home loan,” DiBugnara explains. “I’m also seeing more people getting cosigners and lowering their price range.”

Many buyers are reassessing whether it’s the right time to purchase a home. “A lot of buyers have moved to the sidelines and are taking a wait-and-see approach due to mortgage rate increases,” says Bill Gassett, a real estate agent with Re/Max in Hopkinton, Mass.

Tips for Securing a Low Mortgage Rate

If you’re looking to purchase a home in this market, these steps can help you secure a lower mortgage rate.

1. Increase Your Down Payment

To qualify for the lowest rates on a conventional loan backed by Fannie Mae or Freddie Mac, you’ll need a 20% down payment, says Melissa Cohn, a regional vice president at William Raveis Mortgage. “The bigger your down payment, the better the rate,” Cohn advises.

If you need help with a larger down payment, consider national and local down payment assistance programs. You can research eligibility for these programs at DownPaymentResource.com.

2. Raise Your Credit Score

To be eligible for the lowest mortgage rates on a conforming loan, you generally need a FICO score of 760 or higher, says John Ulzheimer, a credit expert. Raising your credit score by 20 points can potentially save you thousands on your mortgage.

You can get a free credit score estimate through your bank or credit card issuer, or from websites like Credit Sesame or Credit Karma. If your credit score needs improvement, steps such as paying down credit card debts can boost your score quickly.

“Paying down some of your credit card debts can yield a higher FICO score in as little as two weeks,” says Ulzheimer. A good rule of thumb is to keep your credit utilization ratio below 30%.

Check for errors on your credit report as well. “Make sure all the information on your report actually belongs to you,” advises Ulzheimer. “Identity theft can result in someone opening a credit card in your name and accumulating significant debt.”

3. Shop Around

Nearly half of consumers get only a single quote when applying for a mortgage, according to the Consumer Financial Protection Bureau. Shopping around can help you find a lower rate.

Get quotes from at least three lenders. Local lenders and credit unions often offer lower rates than big banks. You can also consider online lenders such as Rocket Mortgage. “You may get a different quote from each lender you speak to,” says Kushi.

A study by Freddie Mac found that borrowers who received two rate quotes during the high-interest months of October and November 2022 could have saved $600 annually. Borrowers who received at least four quotes could have saved more than $1,200 annually.

4. Consider an Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARMs) developed a bad reputation after the 2008 housing market crash, but today’s ARMs have more protections. An ARM starts at a lower interest rate than a fixed-rate mortgage and adjusts based on market indexes after a specified period.

“I like adjustable-rate mortgages when borrowers understand them,” says DiBugnara. “If you have an exit strategy, an ARM can be a great product.” For instance, if you plan to sell your home in the next four years, a five-year ARM can save you thousands in interest.

A Redfin report from May 2022 noted that the typical homebuyer would save an average of $15,582 over five years by choosing a five-year ARM instead of a 30-year fixed-rate mortgage.

5. Lock in the Best Rate

If you qualify for a great interest rate, a mortgage rate lock allows you to secure it for a set period, typically 30, 45, or 60 days, from the time you receive a conditional loan offer to when you close on a home.

Many lenders offer a free 60-day rate lock, but you usually have to request it, says Jacob Channel, senior economist at LendingTree. However, if your financial status changes before you close on a home, your rate can still change.

Channel suggests buyers consider a “float-down” rate lock, which allows you to get a lower rate if interest rates fall. Lenders often charge a fee of 0.5% to 1% of the total mortgage amount for a float-down lock.

“There’s always some risk in getting a rate lock,” says Channel. “But a rate lock can also pay for itself, especially in an environment where rates are rapidly rising.”

By following these steps, you can improve your chances of securing a lower mortgage rate in today’s challenging market.

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Understanding Home Market Value vs. Rebuild Value in Homeowner Insurance

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When discussing homeowner insurance, you might encounter unfamiliar terms such as home market value and rebuild value. Understanding the difference between these terms is crucial for adequately protecting your property.

Market Value vs. Rebuild Value: What Do They Mean?

The market value of your house is the price it would fetch in today’s real estate market. This is the amount you would pay to purchase the home or what you would ask for if you were selling it. Conversely, the rebuild value is the cost to reconstruct your home from scratch if it were destroyed.

The rebuild value can often be higher than the market value. This discrepancy arises because rebuilding a home involves additional costs such as demolition of the existing structure, individual labor, and supplies which are not purchased in bulk like they are during the construction of a whole neighborhood. Furthermore, inflation can increase the cost of materials needed for repairs.

Why Rebuild Value is Important for Insurance

While both market value and rebuild value may come up during the homeowner insurance policy process, the coverage amount on your insurance policy is generally based on the rebuild value. This approach ensures that you can fully restore your home in the event of a total loss covered by your policy.

It’s important to note that land value is not included in the rebuild cost because the land itself isn’t rebuilt or insured. However, market value does reflect land value, as it considers the location, size, and specifics of the land.

Calculating the Cost to Rebuild

Insurance companies use sophisticated tools to calculate the rebuild value, factoring in location, construction quality, square footage, and the cost of supplies and labor. Rebuilding also takes time, and costs can vary significantly based on location and the nature of the rebuild. For instance, after the 2017 wildfires in Northern California, rebuilds took between 12 and 24 months, with costs ranging from $160 to $800 per square foot depending on the home’s standards and location.

Ensuring Adequate Coverage

It is essential to keep your insurance company informed about any updates or additions to your home, especially those that increase square footage or add significant value. This ensures that your insurance policy reflects the updated rebuild value, protecting you from being underinsured.

At Armed Forces Insurance (AFI), our experienced agents can help you determine if your homeowner coverage amount is adequate to protect your family and future. We are dedicated to serving you throughout your time in your home and beyond.

About Armed Forces Insurance

Armed Forces Insurance has been a trusted advisor to American armed forces service members and veterans for over 135 years. Based near Fort Leavenworth in Kansas, we pride ourselves on providing personalized service and straightforward advice. If you’re looking for someone you can trust to protect your home and property, visit our homeowner insurance page to learn more.

 

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8th Annual Christmas Magic Expo 2024, July 27 & 28, 2024

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Come enjoy one of the largest arts and crafts expo on the Northshore in Covington.

Christmas Magic

St Tammany Parish Fairgrounds
1301 N Columbia St.
Covington, LA 70433


July 27 & 28, 2024

 

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Southern Nights, July 12, 2024

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Come to this annual even in Mandeville.

Southern Nights Gala

The Greystone
935 Clausel St
Mandeville LA 70448

July 22, 2022
7pm – 10pm

Tickets:$250 per couple, $150 single ticket, $ 750 Gaming Table, $1,500 Sponsorship

 

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Real Estate Tops List of Long-Term Investment Choices for Americans

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Real estate continues to be Americans’ preferred long-term investment, according to Gallup’s annual economy and personal finance survey.

In the survey conducted in April, 36% of respondents chose real estate as their top investment choice, a figure consistent with last year. Stocks or mutual funds were the second most popular choice at 22%, followed by gold at 18%, and savings accounts or certificates of deposit at 13%.

Bonds and cryptocurrency lagged far behind, with only 4% and 3% of respondents, respectively, naming them as the best long-term investments.

Gallup attributed the high ranking of real estate and stocks to their recent strong performance. Although U.S. real estate values have dipped from their peak in the fourth quarter of 2022, they remain significantly above early 2021 levels. Stock values have also hit new highs this year.

Since 2014, real estate has consistently been the top choice, with 30% to 45% of respondents selecting it each year. In 2013, real estate tied with gold and stocks for first place; in the previous two years, it trailed gold.

Americans’ preference for real estate aligns with their expectations of rising local home values, according to the report.

Income and Political Differences

The survey revealed that Americans at all income levels view real estate as the best investment, but their preferences for other investments vary by income and political affiliation.

Among upper-income Americans (incomes of at least $100,000), 31% named stocks as the best investment, compared to 14% of lower-income Americans (incomes of less than $40,000). Lower-income respondents favored gold (23%) and savings accounts (20%) more than their upper-income counterparts, of whom only 7% considered savings accounts the best investment.

Political affiliation also influenced investment preferences, particularly regarding gold. Twenty-seven percent of Republicans chose gold as the best investment, compared to 7% of Democrats and 18% of independents. Last year, 38% of Republicans named gold as their top choice, versus 12% of Democrats and 27% of independents.

Since 2013, Republicans have consistently been more likely than Democrats to view gold as the best investment. This gap has widened significantly since 2020. Over the past five years, Republicans have also increasingly diverged from independents in their views on gold.

Most subgroups are now more likely than a year ago to favor stocks as the best investment and less likely to favor gold. The notable exception is respondents aged 55 and older, whose opinions have remained unchanged.

Stock Ownership Remains High

The survey found that 62% of U.S. adults have money invested in the stock market, through individual stocks, stock mutual funds, or retirement savings accounts. This percentage is essentially unchanged from last year and marks a return to pre-2008 recession levels when 60% or more Americans owned stock.

Stock values reaching record levels earlier this year likely contribute to the increased preference for stocks as a top investment choice. Stock ownership is highly correlated with income: 87% of upper-income Americans own stock, compared to 25% of lower-income Americans and 65% of middle-income Americans (incomes between $40,000 and $100,000).

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Considering a Second Home? Here’s What You Need to Know

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Winter is behind us, and spring is in full bloom. As you dream about your favorite beach, lake, or mountain trail, you might wonder, “What if we lived there?” The COVID-19 pandemic initially sparked a surge in interest for second homes among retirees. Ian Katz, a real estate agent in New York City, noted, “The pandemic brought people closer. They want exposure to multiple climates while staying connected with family.”

Since 2020, the purchase of second homes has slowed due to rising mortgage interest rates. However, high mortgage rates are not necessarily a deal breaker for retirees and near-retirees. Katz explained that these groups are less likely to need large, long-term loans, often using their savings to buy new properties.

If you’re considering a second home, think carefully before making this significant purchase. The wrong property can turn your dream into a nightmare.

1. Prices Are Near All-Time Highs

Even amid a real estate slump, homes in desirable vacation spots remain pricey. Katz warns that many towns now have full-time remote workers competing with retirees. Be conservative about budgeting and ensure you can manage ongoing costs for the new home, even if your income drops.

Mark Charnet, a financial adviser in Pompton, N.J., cautions that owning a second home could limit your ability to travel elsewhere. “You’re tied to the same place. Unless you love the idea of having your own home and bed in each location, it might not be a good idea.” Renting homes through Airbnb or Vrbo might be a better option for you.

2. Borrowing Is More Challenging

Mortgage rates are typically 0.5% to 0.75% higher for a second home compared to a primary home. Currently, mortgage rates are just shy of the highest they’ve been in 20 years. Expect to make a down payment of at least 10% on a conventional mortgage for a second home, though a larger down payment could help you qualify for a lower interest rate, says Katz.

3. A Test Drive Leads to a Smarter Purchase

Katz has seen retirees rush into second home purchases without fully understanding the area, leading to regrets. “Get a hotel or Airbnb for an extended stay first,” he advises. “Sample the daily vibe.”

Consider how the property will meet your long-term retirement needs. “Even if you run marathons today, that might not be the case 20 years from now,” Katz notes. Think about how you’d manage with less mobility. How many steps are needed to get inside? Is the bedroom on the ground floor? Check if the local homeowners association allows mobility upgrades like a wheelchair ramp.

4. Upkeep and Maintenance Add Up

Charnet points out that people often underestimate the annual upkeep and maintenance costs of a second property. “They budget for the mortgage and taxes, but that’s just scratching the surface,” he says. Maintenance expenses can be high, especially for older homes. Charnet, who owns 25 rental properties, sets aside 7% of the home’s value annually for maintenance and repairs. For a $300,000 property, that’s $21,000 a year.

5. Property Taxes Can Be a Nasty Surprise

States like Florida, Nevada, and Texas don’t have income taxes but can have high property taxes. Katz suggests checking how property taxes will be assessed after you buy. Some localities adjust taxes based on the new selling price, which can be significantly higher than what previous owners paid.

6. State Income Taxes Depend on the 183-Day Rule

Buying a second home in a low- or no-income tax state could reduce your overall tax bill, but it depends on how long you live there. Many states, including New York, follow the 183-day rule, meaning if you spend more than 183 days in New York, you’ll be taxed as a resident.

7. Renting Is Possible but Not Always Easy

Renting out your unused property can generate extra income, but short-term rentals can be challenging. Tim Touchette, owner of Attache Corporate Housing in Washington D.C., says leases are typically a year or longer. If you’re away for six months, finding a renter for that exact period can be difficult. Managing rentals means acting as a part-time landlord or hiring a property manager, which costs about 8% to 12% of the monthly rent. Check if the building has rules restricting rentals.

8. Tax Breaks Depend on Usage

You can deduct home mortgage interest and property taxes for a second home if you live in it at least 14 days a year or 10% of the days you rent it out, whichever is greater. Renting a second home for up to 14 days per year doesn’t require you to pay income taxes on the rental income. For longer rentals, you’ll owe income tax on the rental income but can qualify for more tax breaks, such as the cost of repairs, maintenance, insurance, and property management.

When you sell your second home for a profit, you’ll owe taxes on the entire gain. There isn’t an exclusion like for selling your primary residence. However, if you own the home for at least a year, you’ll owe long-term capital gains, which are much lower than the income tax rate.

9. Insurance and an LLC Protect Your Investment

You’ll need a homeowner’s insurance policy for your second home. Charnet suggests getting quotes from local insurers, as they may offer better rates. If you plan to rent out your second home, consider setting up a limited liability corporation (LLC) to own the property. This protects your primary residence and savings in case of a lawsuit.

10. Inherited Properties Aren’t Always Welcome

Vacation homes can become a point of contention among heirs. Charnet advises considering whether all your heirs are interested in the property. If not, you could adjust your estate to ensure those who aren’t interested receive other assets, such as cash, investments, or life insurance payouts.

In summary, buying a second home requires careful consideration of financial, logistical, and practical factors. Make sure to evaluate all aspects before making this significant investment.

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