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Need a Mortgage to Buy a House? Hoping to Refinance?

01 November 2017

Mortgages

If you're thinking of buying a house, you probably have lots of questions. We talked recently to Harold Perkins of Galaxy Lending Group in Phoenix and came up with these frequently asked questions and answers:

What is the real estate market like right now?

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According to Perkins, the fourth quarter is the time of year when home purchases usually start to slow down. "But this year purchases have been picking up over the last month or so," he says.

It's possible that's because buyers are anticipating that interest rates will go up soon, of course, and want to buy before an increase comes along. Perkins says it may also be that the value of homes has improved and homeowners with more equity in their properties are thinking about selling and moving up to a more expensive home. More and more millennials also seem to be entering the market place.

Is it necessary to have a 20% down payment for a house?

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The 20 percent rule is something of a misconception, Perkins says: "There are loan programs that require as little as 1 percent for a down payment; and some programs allow veterans to buy homes with zero percent to put down."

It is always valuable to put some money down. But if you have perhaps $20,000 in savings and a lot of student debt, it might be preferable to make a lower down payment and use the money to retire more expensive loan debts. There are also many ways to structure a program that will fit the potential buyer's budget.

How big a house could you buy with one percent down?

You might be able to buy a house in the $400,000 range with a very small down payment, but the size of the mortgage isn't really the most important factor. More important is the amount of your income and the size of your monthly payment. In the current housing market, the most activity is in the $200,000 to $250,000 range, Perkins said. In Maricopa County, the average home price is about $250,000.

How much influence does your credit score have on getting a mortgage?

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First-time buyers always worry about their credit score and whether it's good enough for buying a house. "You don't have to have a perfect credit score," Perkins said. "It doesn't have to be 800. Generally, what lenders want to see is whether you paid everything on time over the last two years.

Are mortgage rates really going up soon?

In the past year, rates were very stable, not going up or down very much. They did go up a little after the elections last year, but now they seem to have stabilized. Perkins noted: "A lot of the economic news has been positive lately, so historically that means rates might be going up."

Is this a good time to refinance?

While rates remain where they are, it may be a good time for homeowners to refinance and take out some of their equity for remodeling. A lot of them have been putting off changes for years and now it's possible to update their kitchens and bathrooms.

What about reverse mortgages?

"In the beginning, reverse mortgages were not my favorite because the interest rates were not very good. But now the market place has driven down those rates to make them more attractive," Perkins says.

Now reverse mortgages can be a good tool depending on your financial situation, particularly for retired people on a fixed income. They are especially useful if you have a house payment that's not affordable. It allows you to cash out your equity without leaving the house and use the money to pay off bills if you wish.

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"Some people have a misconception that you're selling your house to a bank when you take out a reverse mortgage," Perkins says. "Actually, you're deferring your mortgage payments until the end of your loan's term. You still own the house, you just owe more on the mortgage than when you first owned the house. When the house is finally sold, the payments that were made to you over the years are deducted from the proceeds at sale as well as the interest payments. In the event that you take out a reverse mortgage and die, your estate or heirs can decide what to do about the payments due."

Requirements are higher now for those seeking reverse mortgages. You have to go to a counseling class before entering into one of these agreements. You can also have your family go to the class with you. As with a conventional mortgage, it's important that you get comparison quotes for the interest rate.

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