- Michelle Plunkett
We’re Thankful for Creative Financing!
Thanksgiving is almost here! In the spirit of counting our blessings, let’s take this opportunity to focus on some of the good stuff-ing!
The frenzied competition in our local real estate market has subsided and sellers can feel this fact. This visible shift makes sellers more reasonable both in their asking prices and terms. At the same time, prospective home buyers are taking themselves out of this market due to the high interest rates. This creates opportunity for those buyers willing to consider a few creative options to make their purchase feasible thus capitalizing on the calmer real estate market. The main idea is to walk away with a great value purchase along with a plan to reduce the cost of your financing later down the line. Note: See also our September Blog - Marry Your Home But Date Your Rate!
Seller Buy-down program - This lending program works with a negotiated credit from the seller to “buy-down” your rate in the initial period of your loan. For example: On a current 30-year fixed rate of 7.00%, a "2-1 Buy-down” program would reduce the first year of payments to a rate of 5.00%. The 2nd year would be at 6.00%, and the remaining 28 years would be at 7.00%. The difference in monthly payments between 5.00% and 7.00% on a $900,000 loan is almost $1,200/mo.! The plan would be to refinance this loan once mortgage interest rates come back down in that 2-year period. The maximum loan amount is $970,800.
Interest only program - This strategy works well with jumbo loan products over $970,800. An interest only loan will drastically reduce your monthly payments by removing the principal portion from your monthly payments during the initial period. The plan would be to refinance this loan during the interest only period once mortgage interest rates come back down.
Specialized Products - Don’t forget to check into VA, FHA, and Home Buying Assistance Programs. We’ve helped a few clients with VA loans recently and the program is much improved from past years so don’t let old notions bar you from discussing this with Team Plunkett!
Home Equity Line of Credit (HELOC) - Perhaps you have been thinking about capitalizing on this real estate market by purchasing an investment property. By using your home equity to finance this purchase, you avoid committing to a long term fixed rate at a higher mortgage rate level as HELOCs are variable interest rates. Further, you typically pay interest only and you can drawn down and pay down on the line at any time. While the initial period will be at higher current rates, these are expected to come down in the next year or two as inflation comes under control. At that time, you can then either continue to let the rate float or refinance into a fixed interest product. This also works well for those who are financing improvements to their current home. Rather than doing a cash out refinance loan now (converting a lower rate mortgage to a higher rate mortgage), use your home equity line to preserve your current preferable mortgage interest rate and accept a higher rate on the smaller HELOC amount only.
There are, of course, other strategies depending on your situation. The key is to talk to a good lender that can provide you with tailored ideas. The main message is, don’t just give-up and assume that you can’t afford to make that purchase now, or to do that renovation now! Contact us for referrals to amazing lenders that can help you!