Obtaining a mortgage on a home is often one of the biggest decisions in one’s lifetime. Additionally, as you have probably heard throughout Spring 2020, rates on mortgages are at an all-time low right now. You might be wondering, “what does that mean for me?”. We’ve pulled in an outside source to answer all your lending questions this month in our Real Estate 101 series.
We’re happy to introduce Matt Shirley, Branch Manager of Bank of England Mortgage in Watkinsville, Georgia. Matt has been working in residential lending since 2006. In 2019, he partnered with two other colleagues to establish the Athens branch of Bank of England Mortgage. Matt is well-versed in all things residential lending, so if you have questions about mortgages, you’ve come to the right place!
GLIMPSE AT THE CURRENT MARKET
March 2020 marked the beginning of an unprecedented season as quarantine took effect to stop the spread of COVID-19. What many might not know, however, is that the residential lending industry also entered an unprecedented time almost simultaneously. Mortgage rates dropped to all-time lows with some of the lowest interest rates ever seen by lenders.
As quarantine continued, business ramped up for lenders as many homeowners wanted to refinance their mortgages for these lower rates. The U.S. government also enacted a policy allowing forbearances on mortgage payments. While this assisted many during financial hardship, it also indirectly made a significant impact on borrowers who:
- Have lower than average credit scores
- Are trying to receive government-backed mortgages (FHA / VA / USDA)
If I want to take out a mortgage now, what does that mean for me?
“As we’re approaching the end of quarantine, business is slowly getting back to normal. We expect rates to remain low for the remainder of 2020.” – Matt Shirley
Essentially, you’re not too late. Although forbearance changed the pace for lending companies and banks during the Spring, there is still time for you to obtain a mortgage while interest rates are low. We might see a slight rise in rates as the economy recovers from COVID-19 and national employment improves, but we can expect lower than average interest rates throughout Summer and Fall. Additionally, as lenders’ records are balanced out according to forbearance policies, getting qualified in the coming months will most likely not be as difficult for borrowers with lower credit scores as in recent months.
INDUSTRY TERM: “free money” and “cheap money”
These phrases have been floating around on news broadcasts, financial articles, and reports, but what do they mean?
Essentially, when someone refers to “cheap money,” they’re referring to the low cost of interest on the loan you could receive, in comparison to a loan with a higher interest rate. According to NerdWallet, the average 30-year fixed APR on a mortgage loan was around 4% in 2019. So far in June 2020, the average APR has remained at or close to 3.25%. So, what’s really the difference in the long run? Let’s do the math.
Let’s say you want to take out a 30-year mortgage on a home at the loan amount of $250,000. At a rate of 4%, over the course of those 30 years, you’d pay a grand total of $429,674. If you were to have a rate of 3.25%, however, your grand total would be $391,687, a difference of nearly $38,000.
IS IT BETTER TO BUY OR TO RENT?
“There’s much more to it than just dollars and cents. Mortgage payment vs. monthly rent amounts are not the only factors.” – Matt Shirley
Many people only take into account the financial differences between what a monthly mortgage payment would cost in comparison to monthly rent payments. According to Matt and many others in the lending industry, the benefits and risks are different for everyone.
“All else being equal, it generally makes more financial sense to have a mortgage because it allows equity and assets to be built up in your favor. However, some who rent don’t necessarily need to buy.” – Matt Shirley
Every situation is unique, and the best thing you can do for your finances and your future is to talk to a financial advisor or lender for more information on your situation.
PRO TIP FROM MATT: WHEN SEARCHING FOR A LENDER…
Go with someone local.
A lender who knows the market in your desired location will have more insight on your best options. Specialization in a specific market generally means more dependability and credibility.
Look at who is most highly recommended.
Taking the time to view others’ experiences with lenders will be worth your while here. Ask your family, friends, and peers who they have had good experiences with!
PRO TIP FROM MATT: If you’re a first-time home buyer…
“There is no such thing as taking your credit too seriously.” – Matt Shirley
One of the most common roadblocks for first-time buyers is shaky or low credit. Taking care of your credit and monitoring your credit score regularly play a large role in loan eligibility and potential interest rates on loans. The cost of bad credit could add up to be thousands of dollars over the years. No matter what your timeline for home ownership is, it is ALWAYS in your best interest to be building up your credit!
The second most common obstacle for first-time buyers is the amount of money they have saved up to buy a home. When considering buying a home, having enough money saved beyond just the amount of your down payment is essential. It’s also a great idea to have your mortgage lender advise on any additional out-of-pocket expenses associated with obtaining your mortgage.
WHERE DOES THE REALTOR COME IN? WHAT ARE THE BENEFITS OF HAVING AN AGENT AT THIS POINT IN THE HOME BUYING PROCESS?
“It is absolutely essential to have an experienced agent when lending is involved.” – Matt Shirley
If you decide not to hire an agent to assist you in your home buying journey, you run the risk of having one less person who acts as your advocate. Agents have experience handling negotiations, contracts and other small steps of the process. It is your best interest to have yourself protected by the representation of a good agent.
The Broad & Main team of experts specializes in carrying transactions to completion, including those with financing involved. We are confident in our ability to communicate with lenders, advocate for buyers, and make sure transaction processes go as smoothly as possible for both sides involved.
Mortgages can sometimes seem intimidating as you’re thinking about the best moves to make for your finances. Knowledge really is power, and we hope you’re feeling more empowered now to take that next step toward the feeling of home, wherever you live.
Many thanks to Matt Shirley and Bank of England Mortgage for helping us dive deeper into the world of residential lending. If you have more questions or are interested in exploring your loan options, contact Matt and his team today!
“Always relational, never just transactional.”
Our mission is to bring expertise and care to every Broad & Main venture because we believe that real estate at its core is all about relationship. We look forward to building one with you, so contact us today!