This month, I want to answer some frequently asked home loan questions, so I sat down with my friend and colleague Jim Sakrison of C2 Financial Corporation at his office right here in North Park. I met Jim several years ago when I was doing work as a professional partner of McKinley Elementary, where his kids attend school. Jim’s been in lending almost 20 years, and he and his family live, work, and play here in our favorite neighborhood.
KH: With the run-up in home prices over the last ten years, is this still a good time to buy?
JS: The answer depends on your personal situation but, in general, yes. If a potential homebuyer has at least a three-year expectation of owning the home, then the risk of losing value is limited. And the potential equity gained by paying down a mortgage is preferable to paying rent, which is a sunk cost.
On top of that, interest rates remain near historic lows, but will not stay here forever. Even if home prices drop, an increase in interest could still increase a homeowner’s payment. For example, look at a $600,000 home purchased at 4% today versus a $550,000 home at a future rate of 5%, both with 20% down: Even when factoring in higher property taxes, the higher-priced home at the lower rate would be cheaper.
KH: What types of loan options are out there for borrowers who don’t have much available for their down payment?
JS: Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs both offer loans at 3% down with discounted mortgage insurance rates. For less than perfect credit, the FHA offers loans with 3.5% down, although the mortgage insurance is higher. Last but not least, the VA offers qualifying service members and veterans the best home loan program around: zero down with no mortgage insurance requirement.
KH: How does a homeowner know when it makes sense to refinance?
JS: Generally, it’s worth considering a refi when the interest rate can be lowered by at least a half percent on a fixed rate loan. However, in cases where a borrower has been paying on a loan for more than seven years, it may not make sense to start the amortization period over. It is important to consider closing costs that might be rolled into the loan and the recapture period before monthly interest savings are truly realized. If a refinance will eliminate the mortgage insurance requirement and lower the interest rate, that’s usually a prudent decision. A refi that includes debt consolidation — even when the rate is not being reduced significantly — may make sense if it improves overall cash flow. Everyone’s situation is unique and it is essential to talk to a mortgage professional and financial advisor to help you make the right decision.
Want to talk with Jim for more information on buying or refinancing?
Contact Jim at: C2 Financial Corporation | 619.251.5047 direct
NMLS# 244905 / DRE# 01379257