Montague Miller Blog

Some Highlights

• Even with higher mortgage rates, the mortgage process doesn't need to be something you fear. Here are some steps to help as you set out to buy a home.
• Know your credit score and work to build strong credit. When you're ready, lean on the pros and connect with a lender so you can get pre-approved and begin your home search.
• Any major life change can be scary, and buying a home is no different. Partner with a trusted real estate professional to take fear out of the equation.

Resources: Keeping Current Matters

It took a lot of dedicated effort to get your home on the market. It would be nice if you could just sit back and wait for the offers to roll in. Unfortunately, it's not that easy.

Once your home is on the market, your real estate agent will work hard to complete the sale, but you'll have to do your part to keep things moving forward. Here are five things you can do to help keep your marketing efforts on track.

1. Never say no to a showing
   When you're too tired to handle a last-minute showing, do it anyway. Home showings are a crucial part of the home-selling process. While they don't guarantee a sale, they do bring potential buyers to your door. When a home buyer decides to view your home it means that your listing made it through their initial process of elimination.
   
   Of course, no one can predict the outcome of a showing. The right buyer might walk in the door as soon as you list your property, or your sale could require multiple showings. Opening your house on demand is the best way to find out.
   
   
2. Keep your home white-glove clean
   When you open up your home for a showing, potential buyers inspect and evaluate areas of your home you might not even think about. They will notice dirty tile grout and remember dusty dining room corners, and these things could cost you a sale.
   
   It's a good idea to pay a service to do your initial cleaning as well as regularly scheduled cleanings while your home is on the market. If you enjoy doing your own cleaning, you'll still have plenty to do. You'll need to give your home a once-over before each showing or open house, and you'll want to clean up afterward.
   
   
3. Stay pet-odor vigilant
   If you have a cat, dog, or other indoor pet your realtor probably discussed odor issues early in your marketing process. You likely worked hard to rid your home of telltale odors before you had your first showing. That's great, but if your pets are still in your home, odors will be a recurring problem.
   
   If you've lived with pet odors for years, your nose might be insensitive to smells that are obvious to everyone else. It's important to stay vigilant.
   
   • Clean pet living areas regularly.
   • Use a quality pet deodorizer spray.
   • Clean up pet hair daily.
   • Remove pets, litter boxes, bowls, etc. from the premises during a showing.
   • Burn a scented candle before a showing to disguise odors.
   
   
4. Keep working on your curb appeal
   If you worked hard to give your home a look that brings buyers to your door, don't forget to keep it fresh. Getting the right curb appeal is worth the time and effort. If your home is on the market for more than a few months, you'll need to refresh the look.
   
   • Hire a landscaper to maintain your yard.
   • Keep your gutters clean.
   • Wash dirt and mud from walkway, driveways, and porches.
   • Check for new problems or issues you might not have noticed before.
   
   
5. Create a pleasant atmosphere
   When potential buyers visit your home, give them an atmosphere that says, "welcome home." Remove throw rugs and other trip hazards. Open bedroom and bathroom doors. Brighten rooms with natural and artificial light by turning on lamps and opening up curtains, drapes, and blinds.
   
   Adjust your climate control system to a pleasant temperature. Burn a lightly scented candle just before a scheduled showing, but don't forget to blow it out before you leave.

Your work isn't done until the sale is finalized. With these tips, you can ensure everything goes right with your home sale.

When you're selling your home, first impressions are everything. Typically, each home buyer is looking for something different in the house they buy. However, there are common problems that will make them walk — and, maybe, even run — out of your home if they see them. The good news is there are several things you can do to make buyers fall in love with your home.

1. Boost Your Curb Appeal
   Start with your yard. You won't believe the difference mowing your lawn, trimming hedges, picking up toys, adding fresh mulch, and raking leaves make. Best of all, improving the visual appearance of your yard doesn't cost you much. Just remember, once you're committed to selling your home, you'll need to stay on top of lawn work until the property has sold and is no longer your responsibility.
   
   If you have a plain yard, you should consider adding one or two flower beds or planting an ornamental tree to spruce things up.
   
   
2. Tweak the Interior
   Take a look at the interior of your home. Is the paint chipped, streaked, or just tired looking? Do the fixtures and door handles match? Are the outlet covers and light switches working properly?
   
   The odds are good that when you look at the interior of your home through the eyes of a prospective buyer, you'll realize that things are a bit dated. Now that you're selling your home, it's time to change that. A quick run to the hardware store for updated door fixtures, outlet covers, and paint won't cost too much. With a weekend's worth of work, you'll have given the inside of your home a facelift and made it more appealing to buyers.
   
   When choosing fixtures and, more importantly, paint, stick to neutral options.
   
   
3. Upgrade the Kitchen
   Buyers have said that the kitchen was what made them decide to place an offer on a home.
   
   If you're on a shoestring budget, you'll want to devote your funds to:
   
   - Ensuring the plumbing works perfectly,
   - Repairing and/or replacing damaged cabinet doors,
   - Making sure the kitchen is well lit,
   - Repainting,
   - Relining the shelves/drawers,
   - Refinishing hardwood floors,
   - Cleaning grout and re-grouting any damaged/crumbling grout.
   
   If you have more money to devote to upgrading the kitchen, consider:
   
   - Replacing older countertops with new granite countertops,
   - Upgrading to energy-efficient appliances.
   
   
4. Ceilings
   If your home was built prior to the 1980s and has a popcorn-finished ceiling will want to have it tested for asbestos. If the test is positive, you'll want to replace the ceiling before speaking to a real estate agent. Now that buyers understand the potential health risks connected to asbestos, they won't consider a home with the material.
   
   Even if the test comes back negative, you should still consider having the ceilings replaced. Not only does the popcorn finish give the house a dated feel, but it's also extremely difficult to keep clean or paint, which serves as a turn-off for any prospective buyers.
   
   
5. Remove the Clutter
   It's difficult for prospective buyers to fully appreciate the full potential of your home if it's full of clutter, so after deciding to sell your home, put any items you can temporarily live without into storage.

With these tactics and fixes, there's no doubt buyers will fall in love with your home. Ask your trusted Montague Miller real estate agent for more tips on how to get the most out of your sale.

If you're planning to sell your home, consider staging it. From decluttering and cleaning to rearranging and styling, successful home staging can make you money. In fact, according to the National Association of REALTORS®, most sellers' agents agree a well-staged home increases the dollar amount home buyers offer.

If you are an HGTV fan, you know home staging is when the "pros" go through a home clearing out the clutter, highlighting its strengths, and presenting each room in the best light that will attract the largest group of potential home buyers.  

But, do you need to hire a professional stager? Maybe not. Use these six tips to manage the styling and upgrading of your home to fetch a higher sales price.

1. Ban the Clutter
   Nothing turns away prospective buyers quite as quickly as clutter. For some buyers, clutter makes it impossible for them to see the home because all they can see is the mess. For others, clutter makes them feel as if the home does not have enough space for their own needs because it does not have enough room for yours. Clear away the clutter, so the home's spacious design shows through.
   
   
2. Spruce up the Front Door
   When selling your home, the front door of your home is the first thing most people notice, so make sure it really shines. Give it a fresh coat of paint, add some outside, potted plants, and a new rug. If the front door is inviting and welcoming, the home will sell faster and for a better price.
   
   
3. Place Furniture Strategically
   The placement of your furniture can add to or detract from your home. In the main living areas, put the furniture into conversation groupings rather than pushing it up against the wall. Then, in other rooms, make sure the furniture accentuates the home's positive features while drawing the eye away from negative ones. Remove some furniture, if needed, to help the room look as large as possible.
   
   
4. Spruce up a Neglected Bedroom
   Do you have a guestroom or a master bedroom that you've neglected over the years? Take some time to spruce it up. Transform the guest room into a kid's bedroom (even if you don't have kids) to make the home appealing to families who do. Make sure the bed is the focal point of your master bedroom space. Aim for symmetry where clutter rules. With these tips, your home will be much more appealing.
   
   
5. Add Lighting
   Most homes do not have the right amount of lighting for proper home staging techniques. Even if your home has plenty of natural light, you want to ensure that you have 100 watts of lighting for every 50 square feet of living space. Adding lighting on multiple levels of the room, including overhead lights and table lamps, will make the space feel warmer and inviting.
   
   
6. Clean and Organize the Kitchen, Inside and Out
   The kitchen will make or break your home's ability to shine, so spend a significant amount of time here as you stage the property. Make sure you clean it well and pack away all clutter so the countertops can be clear. Then, clean out each cupboard and pantry to make it look like it has plenty of storage space. Remember, potential buyers will be looking inside these spaces. Finally, update any outdated appliances and cover any ugly cabinets with a fresh coat of paint. Don't forget to invest in a new sink faucet if an upgrade is needed.

In a competitive market or in a situation where you need to sell your home quickly, staging is the key. Keep these tips in mind, and don't be afraid to talk to a professional stager. Often, the cost of professional staging is made back with a higher sales price and less time on the market!

Deciding whether to jump into the housing market or rent instead is rarely an easy decision – especially if you're a first-time homebuyer. But in today's whirlwind market, you may find it particularly challenging to pinpoint the best time to start exploring homeownership. 

 A real estate boom during the pandemic pushed home prices to an all-time high.¹ Add higher mortgage rates to the mix, and some would-be buyers are wondering if they should wait to see if prices or rates come down.

 But is renting a better alternative? Rents have also soared along with inflation – and are likely to continue climbing due to a persistent housing shortage.² And while homebuyers can lock in a set mortgage payment, renters are at the mercy of these rising costs for the foreseeable future.

 So, what's the better choice for you? There's a lot to consider when it comes to buying versus renting. Luckily, you don't have to do it alone. Reach out to schedule a free consultation and we'll help walk you through your options. You may also find it helpful to ask yourself the following questions: 

1. How long do I plan to stay in the home?

 You'll get the most financial benefit from a home purchase if you own the property for at least five years.³ If you plan to sell in a shorter period of time, a home purchase may not be the best choice for you.

 There are costs associated with buying and selling a home, and it may take time for the property's value to rise enough to offset those expenditures.

 Even though housing markets can shift from one year to the next, you'll typically find that a home's value will ride out a market's ups and downs and appreciate with time.⁴ The longer you own a property, the more you are likely to benefit from its appreciation.

 Once you've found a community that you'd like to stay in for several years, then buying over renting can really pay off. You'll not only benefit from appreciation, but you'll also build equity as you pay down your mortgage – and you'll have more security and stability overall.

 Also important: If you plan to stay in the home for the life of the mortgage, there will come a time when you no longer have to make those payments. As a result, your housing costs will drop dramatically, while your equity (and net worth) continue to grow. 

2. Is it a better value to buy or rent in my area?

 If you know you plan to stay put for at least five years, you should consider whether buying or renting is the better bargain in your area.

 One helpful tool for evaluating your options is a neighborhood's price-to-rent ratio: just divide the median home price by the median yearly rent price. The higher the price-to-rent ratio is, the more expensive it is to buy compared to rent.⁵ Keep in mind, though, that this equation provides only a snapshot of where the market stands today. As such, it may not accurately account for the full impact of rising home values and rent increases over the long term.

 According to the National Association of Realtors, a typical U.S. homeowner who purchased a single-family existing home 10 years ago would have gained roughly $225,000 in equity — all while maintaining a steady mortgage payment.⁶

 In contrast, someone who chose to rent for the past 10 years would have not only missed out on those equity gains, but they would have also seen U.S. rental prices increase by around 66%.⁷

 So even if renting seems like a better bargain today, buying could be the better long-term financial play.

 Ready to compare your options? Then reach out to schedule a free consultation. As local market experts, we can help you interpret the numbers to determine if buying or renting is the better value in your particular neighborhood.

3.Can I afford to be a homeowner?

 If you determine that buying a home is the better value, you'll want to evaluate your financial readiness.

 Start by examining how much you have in savings. After committing a down payment and closing costs, will you still have enough money left over for ancillary expenses and emergencies? If not, that's a sign you may be better off waiting until you've built a larger rainy-day fund.

 Then consider how your monthly budget will be impacted. Remember, your monthly mortgage payment won't be your only expense going forward. You may also need to factor in property taxes, insurance, association fees, maintenance, and repairs.

 Still, you could find that the monthly cost of homeownership is comparable to renting, especially if you make a sizable down payment. Landlords often pass the extra costs of homeowning onto tenants, so it's not always the cheaper option.

 Plus, even though you'll be in charge of financing your home's upkeep if you buy, you'll also be the one who stands to benefit from the fruits of your investment. Every major upgrade, for example, not only makes your home a nicer place to live; it also helps boost your home's market value.

 If you want to buy a home but aren't sure you can afford it, give us a call to discuss your goals and budget. We can give you a realistic assessment of your options and help you determine if your homeownership dreams are within reach.

4. Can I qualify for a mortgage?

 If you're prepared to handle the costs of homeownership, you'll next want to look into how likely you are to get approved for a mortgage.

 Every lender will have its own criteria. But, in general, you can expect a creditor to scrutinize your job stability, credit history, and savings to make sure you can handle a monthly mortgage payment.

 For example, lenders like to see evidence that your income is stable and predictable. So if you're self-employed, you may need to provide additional documentation proving that your earnings are dependable. A lender will also compare your monthly debt payments to your income to make sure you aren't at risk of becoming financially overextended.

 In addition, a lender will check your credit report to verify that you have a history of on-time payments and can be trusted to pay your bills. Generally, the higher your credit score, the better your odds of securing a competitive rate.

 Whatever your circumstances, it's always a good idea to get preapproved for a mortgage before you start house hunting. Let us know if you're interested, and we'll give you a referral to a loan officer or mortgage broker who can help.

5. How would owning a home change my life?

 Before you begin the preapproval process, however, it's important to consider how homeownership would affect your life, aside from the long-term financial gains.

 In general, you should be prepared to invest more time and energy in owning a home than you do renting one. There can be a fair amount of upkeep involved, especially if you buy a fixer-upper or overcommit yourself to a lot of DIY projects. If you've only lived in an apartment, for example, you could be surprised by the amount of time you spend maintaining a lawn.

 On the other hand, you might relish the chance to tinker in your very own garden, make HGTV-inspired improvements, or play with your dog in a big backyard. Or, if you're more social, you might enjoy hosting family gatherings or attending block parties with other committed homeowners.

 The great thing about owning a home is that you can generally do what you want with it – even if that means painting your walls fiesta red one month and eggplant purple the next!

 The choice – like the home – is all yours.  

HAVE MORE QUESTIONS? WE'VE GOT ANSWERS 

The decision to buy or rent a home is among the most consequential you will make in your lifetime. We can make the process easier by helping you compare your options using real-time local market data. So don't hesitate to reach out for a personalized consultation from our Montague Miller & Co trusted real estate professionals, regardless of where you are in your deliberations. We'd be happy to answer your questions and identify actionable steps you can take now to reach your long-term goals.

The above references an opinion and is for informational purposes only.  It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs. 

Sources:

1. CNN -
   https://www.cnn.com/2022/08/11/homes/home-prices-second-quarter/index.html
2. NPR - https://www.npr.org/2022/07/14/1109345201/theres-a-massive-housing-shortage-across-the-u-s-heres-how-bad-it-is-where-you-l
3. Bankrate -
   https://www.bankrate.com/mortgages/5-year-real-estate-rule/
4. Federal Reserve Bank of St. Louis -
   https://fred.stlouisfed.org/series/MSPUS
5. National Association of REALTORS - https://www.nar.realtor/blogs/economists-outlook/price-to-rent-ratios-by-state-from-2014-2019
6. National Association of REALTORS -
   https://www.nar.realtor/blogs/economists-outlook/single-family-homeowners-typically-accumulated-225K-in-housing-wealth-over-10-years
7. Statista -
   https://www.statista.com/statistics/200223/median-apartment-rent-in-the-us-since-1980/

Selling your home upon retirement is a question millions of people grapple with. While it might seem logical to scale down when you retire, is it really the best option? 

There's no "one size fits all" solution for selling your home. Most people will find there are pros and cons to the choice they have to weigh before making a decision.

• Pro: Selling Can Give You Retirement Income
  If you've worked hard to build equity in your house, selling it could be exactly the step you need to take to ensure a comfortable retirement. Plus, if you've been living in the home consistently in recent years, you may be eligible to shield much of the sale's proceeds from taxation. This can be the solution for retirees who find themselves without enough savings.
  
  
• Pros: Selling Means Fewer Recurring Costs
  No matter how well-maintained your home is, there'll always be costs involved in keeping it running. Your HVAC system, plumbing, electrical wiring, and much more can all fail without much warning. By selling, you avoid all these inevitable challenges of home ownership. Plus, you may find that you can reduce the overall costs of your utilities.
  
  
• Pros: Selling May Mean More Accessible Accommodations
  With age, many people face security and safety concerns they did not have in their youth. One of the most serious ones is the risk of a serious slip and fall, particularly when your home has many stairs. The cost of remodeling a home to make it more comfortable in retirement may be greater than what you are willing to invest in your retirement income.
  
  
• Pros: Selling May Mean More Flexibility in Retirement
  Your desires in retirement might be very different from what you wanted from your home years or decades ago. You might want to move closer to relatives, for example, get into a community more in keeping with your needs, or even move to another country. In all these situations and more, maintaining your home can make it harder for you to focus on the present.
  
  
• Cons: Renting May Not Be Worth It
  One of the biggest questions about selling is whether it makes financial sense. While your home might be appreciating in value, the cost of rent in your community is probably rising as well. If you know where you want to live after selling, take a close look at the nearby housing and the financial resources it will take for you to live comfortably there.
  
  
• Cons: Sentimental Value Matters
  By the time they reach retirement, many people have spent decades in one home. There's simply no way to put a price on the sentimental value such a property can offer. It may make more sense to keep the home in the family if you consider it an important part of your legacy. This may be a matter to bring up with adult children or others with a close connection to the place.
  
  
• Cons: It May Not Be the Right Time for Selling Your Home
  If your home is appreciating in value — or a minor improvement could substantially raise its sale price — it may be worth it to wait a little longer before making your move. In a "seller's market," a delay of just three months can make a big difference in what you can expect from your sale. If conditions are ideal, it may make sense to wait six months or even another year.

Ultimately, selling your home is a deeply personal decision. It's best made with input from a real estate agent you can rely on. Reach out to a Montague Miller & Company real estate professional to help you make your next move.

Selling your home soon? As you look at your finances and list your home, it's probably tempting to focus on your potential earnings. However, every real estate transaction comes with closing costs for the buyer and the seller.

You probably already know you're responsible for the agents' commissions, but what about the rest of your closing costs?

Before selling your home, make sure you understand all the closing costs you'll be expected to cover. Here are some common costs that may surprise you:  

1. Pro-Rated Property Taxes
   You're responsible for all property taxes up to the date of the sale. That means if you're selling in July, you need to pay your property tax for the first seven months of the year — not wait until next year to file. Make sure you're aware of the final number because you must provide this to the buyers. This is required because buyers will get a bill next year for the whole year, including the months you still owned the home.
   
   
2. Transfer Taxes and Fees
   Real estate transactions are essentially title transfers from one owner to another. Before your sale is complete, you must pay state and county or city fees in order to process this transfer. You may also need to pay transfer taxes. While most sellers are aware that it costs money to transfer a title, many are surprised by the final percentage, which can fluctuate wildly depending on your location. Make sure you're aware of the local requirement beforehand.
   
   
3. Title Insurance
   If you think buyers are always responsible for buying a title insurance policy, think again. Many states now require sellers to cover the new homeowner's title insurance policy. This coverage is designed to protect the mortgage lender from any future claims, and they won't approve the transaction without it. Find out now if you will be responsible for the buyer's title insurance coverage.
   
   
4. Home Preparations
   Staging a home for market success is about more than just cleaning thoroughly and rearranging the furniture. Your real estate agent will know which services are the most valuable, especially to sellers who want to ask for more money or sell more quickly. For example, renting a storage unit will make it much easier to clear out a third of your clutter and personal possessions, leaving a more neutral and walkable space for potential buyers. Carpet cleaning, painting, lawn care, and professional photography services are also important investments for serious sellers.

Of course, your final closing costs before selling your home will depend on a lot of different factors. From zip code and loan terms to the buyers' willingness to negotiate, these factors will help you figure out just how much to set aside for closing. Understand your responsibilities and prepare yourself for every possible expense.

Mortgage rates have been on a roller coaster ride this year, rising and falling amid inflationary pressures and economic uncertainty. And even the experts are divided when it comes to predicting where rates are headed next.¹

This climate has been unsettling for some homebuyers and sellers. However, with proper planning, you can work toward qualifying for the best mortgage rates available today – and open up the possibility of refinancing at a lower rate in the future.

How does a lower mortgage rate save you money? According to Trading Economics, the average new mortgage size in the United States is currently around $410,000.² Let's compare a 5.0% versus a 6.0% fixed-interest rate on that amount over a 30-year term.

With a 5% rate, your monthly payments would be about $2,201. At 6%, those payments would jump to $2,458, or around $257 more. That adds up to a difference of almost $92,600 over the lifetime of the loan. In other words, shaving off just one percentage point on your mortgage could put nearly $100K in your pocket over time.

So, how can you improve your chances of securing a low mortgage rate? Try these eight strategies:

1. Raise your credit score.

Borrowers with higher credit scores are viewed as "less risky" to lenders, so they are offered lower interest rates. A good credit score typically starts at 690 and can move up into the 800s.³ If you don't know your score, check with your bank or credit card company to see if they offer free access. If not, there are a plethora of both free and paid credit monitoring services you can utilize.

 If your credit score is low, you can take steps to improve it, including:⁴

• Correct any errors on your credit reports, which can bring down your score. You can access reports for free by visiting AnnualCreditReport.com.
• Pay down revolving debt. This includes credit card balances and home equity lines of credit.
• Avoid closing old credit card accounts in good standing. It could lower your score by shortening your credit history and shrinking your total available credit.
• Make all future payments on time. Payment history is a primary factor in determining your credit score, so make it a priority.
• Limit your credit applications to avoid having your score dinged by too many inquiries. If you're shopping around for a car loan or mortgage, minimize the impact by limiting your applications to a short period, usually 14 to 45 days.⁵

 Over time, you should start to see your credit score climb — which will help you qualify for a lower mortgage rate. 

2. Keep steady employment.

If you are preparing to purchase a home, it might not be the best time to make a major career change. Unfortunately, frequent job moves or gaps in your résumé could hurt your borrower eligibility.

When you apply for a mortgage, lenders will typically review your employment and income over the past 24 months.⁵ If you've earned a steady paycheck, you could qualify for a better interest rate. A stable employment history gives lenders more confidence in your ability to repay the loan.

That doesn't mean a job change will automatically disqualify you from purchasing a home. But certain moves, like switching from W-2 to 1099 (independent contractor) income, could throw a wrench in your home buying plans.⁶

3. Lower your debt-to-income ratios.

Even with a high credit score and a great job, lenders will be concerned if your debt payments are consuming too much of your income. That's where your debt-to-income (DTI) ratios will come into play.

There are two types of DTI ratios:⁷

1. Front-end ratio — What percentage of your gross monthly income will go towards covering housing expenses (mortgage, taxes, insurance, and dues or association fees)?
2. Back-end ratio — What percentage of your gross monthly income will go towards covering ALL debt obligations (housing expenses, credit cards, student loans, and other debt)?

What's considered a good DTI ratio? For better rates, lenders typically want to see a front-end DTI ratio that's no higher than 28% and a back-end ratio that's 36% or less.⁷

If your DTI ratios are higher, you can take steps to lower them, like purchasing a less expensive home or increasing your down payment. Your back-end ratio can also be decreased by paying down your existing debt. A bump in your monthly income will also bring down your DTI ratios. 

4. Increase your down payment.

Minimum down payment requirements vary by loan type. But, in some cases, you can qualify for a lower mortgage rate if you make a larger down payment.⁸

Why do lenders care about your down payment size? Because borrowers with significant equity in their homes are less likely to default on their mortgages. That's why conventional lenders often require borrowers to purchase private mortgage insurance (PMI) if they put down less than 20%.

A larger down payment will also lower your overall borrowing costs and decrease your monthly mortgage payment since you'll be taking out a smaller loan. Just be sure to keep enough cash on hand to cover closing costs, moving expenses, and any furniture or other items you'll need to get settled into your new space.

5. Compare loan types.

All mortgages are not created equal. The loan type you choose could save (or cost) you money depending on your qualifications and circumstances.

For example, here are several common loan types available in the U.S. today:⁹

• Conventional — These offer lower mortgage rates but have more stringent credit and down payment requirements than some other types.
• FHA — Backed by the government, these loans are easier to qualify for but often charge a higher interest rate.
• Specialty — Certain specialty loans, like VA or USDA loans, might be available if you meet specific criteria.
• Jumbo — Mortgages that exceed the local conforming loan limit are subject to stricter requirements and may have higher interest rates and fees.¹⁰

When considering loan type, you'll also want to weigh the pros and cons of a fixed-rate versus variable-rate mortgage:¹¹ 

• Fixed rate — With a fixed-rate mortgage, you're guaranteed to keep the same interest rate for the entire life of the loan. Traditionally, these have been the most popular type of mortgage in the U.S. because they offer stability and predictability.
• Adjustable rate — Adjustable-rate mortgages, or ARMs, have a lower introductory interest rate than fixed-rate mortgages, but the rate can rise after a set period of time — typically 3 to 10 years.

According to the Mortgage Bankers Association, 10% of American homebuyers are now selecting ARMs, up from just 4% at the start of this year.¹² An ARM might be a good option if you plan to sell your home before the rate resets. However, life is unpredictable, so it's important to weigh the benefits and risks involved. 

6. Shorten your mortgage term.

A mortgage term is the length of time your mortgage agreement is in effect. The terms are typically 15, 20, or 30 years.¹³ Although the majority of homebuyers choose 30-year terms, if your goal is to minimize the amount you pay in interest, you should crunch the numbers on a 15-year or 20-year mortgage.

With shorter loan terms, the risk of default is less, so lenders typically offer lower interest rates.¹³ However, it's important to note that even though you'll pay less interest, your mortgage payment will be higher each month, since you'll be making fewer total payments. So before you agree to a shorter term, make sure you have enough room in your budget to comfortably afford the larger payment. 

7. Get quotes from multiple lenders.

When shopping for a mortgage, be sure to solicit quotes from several different lenders and lender types to compare the interest rates and fees. Depending upon your situation, you could find that one institution offers a better deal for the type of loan and term length you want.

Some borrowers choose to work with a mortgage broker. Like an insurance broker, they can help you gather quotes and find the best rate. However, if you use a broker, make sure you understand how they are compensated and contact more than one so you can compare their recommendations and fees.¹⁴

Don't forget that we can be a valuable resource in finding a lender, especially if you are new to the home buying process. After a consultation, we can discuss your financing needs and connect you with loan officers or brokers best suited for your situation.

8. Consider mortgage points.

Even if you score a great interest rate on your mortgage, you can lower it even further by paying for points. When you buy mortgage points — also known as discount points — you essentially pay your lender an upfront fee in exchange for a lower interest rate. The cost to purchase a point is 1% of your mortgage amount. For each point you buy, your mortgage rate will decrease by a set amount, typically 0.25%.¹⁵ You'll need upfront cash to pay for the points, but you can more than make up for the cost in interest savings over time.

However, it only makes sense to buy mortgage points if you plan to stay in the home long enough to recoup the cost. You can determine the breakeven point, or the period of time you'd need to keep the mortgage to make up for the fee, by dividing the cost by the amount saved each month.¹⁵ This can help you determine whether or not mortgage points would be a good investment for you. 

Getting Started

Unfortunately, the rock-bottom mortgage rates we saw during the height of the pandemic are behind us. However, today's 30-year fixed rates still fall beneath the historical average of around 8% — and are well below the all-time peak of 18.45% in 1981.^{16, 17}

And although higher mortgage rates have made it more expensive to finance a home purchase, they have also eliminated some of the competition from the market. Consequently, today's buyers are finding more homes to choose from, fewer bidding wars, and more sellers willing to negotiate or offer incentives such as cash toward closing costs or mortgage points.

If you're ready and able to buy a home, there's no reason that concerns about mortgage rates should sideline your plans. The reality is that many economists predict home prices to continue climbing.¹⁸ So you may be better off buying today at a slightly higher rate than waiting and paying more for a home a few years from now. You can always refinance if mortgage rates go down, but you can't make up for the lost years of equity growth and appreciation.

If you have questions or would like more information about buying or selling a home, reach out to schedule a free consultation with your local Montague Miller & Company real estate professional. We'd love to help you weigh your options, navigate this shifting market, and reach your real estate goals!

Sources:

1. Washington Post - https://www.washingtonpost.com/business/2022/08/04/mortgage-rates-sink-below-5-percent-first-time-four-months/
2. Trading Economics - https://tradingeconomics.com/united-states/average-mortgage-size
3. NerdWallet - https://www.nerdwallet.com/article/finance/what-is-a-good-credit-score
4. org - https://www.debt.org/credit/improving-your-score/
5. The Balance - https://www.thebalance.com/will-multiple-loan-applications-hurt-my-credit-score-960544
6. Time -https://time.com/nextadvisor/mortgages/how-lenders-evaluate-your-employment/
7. Bankrate - https://www.bankrate.com/mortgages/why-debt-to-income-matters-in-mortgages/
8. NerdWallet - https://www.nerdwallet.com/article/mortgages/payment-buy-home
9. Consumer Financial Protection Bureau - https://www.consumerfinance.gov/owning-a-home/loan-options/
10. NerdWallet - https://www.nerdwallet.com/article/mortgages/jumbo-loans-what-you-need-to-know
11. Bankrate - https://www.bankrate.com/mortgages/arm-vs-fixed-rate/
12. MarketWatch - https://www.marketwatch.com/picks/as-mortgage-rates-rise-heres-exactly-how-more-homebuyers-are-snagging-mortgage-rates-around-4-01656513665
13. Consumer Financial Protection Bureau - https://www.consumerfinance.gov/owning-a-home/loan-options/#anchor_loan-term_361c08846349fe
14. Federal Trade Commission - https://consumer.ftc.gov/articles/shopping-mortgage-faqs
15. Bankrate - https://www.bankrate.com/mortgages/mortgage-points/
16. CNBC - https://www.cnbc.com/select/mortgage-rates-today-still-relatively-low/
17. Rocket Mortgage - https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed
18. MarketWatch - https://www.marketwatch.com/picks/continuing-home-price-deceleration-heres-what-5-economists-and-real-estate-pros-predict-will-happen-to-the-housing-market-this-year-01659347993