The housing market changes so quickly, from one season to the next. For the majority of last year, most communities around the country found that sellers had the upper hand in real estate transactions. Multiple homebuyers were trying to buy up property – increasing offers and making concessions at every turn. Some even went way above the asking price (and market value) just to have a chance to purchase their future home.
Today, the tides are turning ever so slowly. More and more buyers are finding that they have a bit more control – or at least have a more level playing field – as they move forward with finding the house of their dreams. Of course, before they can proceed to make an offer, they need to be pre-approved for a mortgage.
So, what is it like shopping for mortgages in the new year? Let’s take a look at the current trends and the different options available.
Current Trends for the New Year
Believe it or not, shopping for mortgages in January is a fantastic time for buying a new home. It comes with competitive pricing and discounted rates when compared to other seasons – especially summer and fall.
Why is this? Well, there is no definitive answer. The reason likely has to do with the fact that the competition is nowhere near as fierce in the winter months as it is during the warmer months.
Does that mean you should only apply for one mortgage? Does that mean you should just grab the first mortgage that you get approved for? Not at all. Just because the volume of buyers is down doesn’t mean that the offers from mortgage companies aren’t still competing for your business.
Although interest rates may fluctuate for 2023, January is proving to be a very good time to invest in a mortgage as we move through the year. Most tend to agree on the fact that continued inflation, the looming idea of a possible recession, and high-interest rates are all going to make an impact on homebuyers.
Different Types of Mortgages
If you are interested in buying a new home this year, now is the time to get shopping for mortgages. And understanding the different types of home loans available can help you to secure something that is a great fit for your needs.
- Fixed-Rate Mortgages: Fixed-rate mortgages are the most well-known type of loan. You pay a monthly payment that includes principal and interest – and it never changes throughout the loan’s term. You can often find these for terms ranging from 10 years to 30 years.
- Adjustable Rate Mortgages (ARM): ARM loans have an interest rate that varies throughout the term of the loan. It may or may not start out as fixed, but then it will fluctuate due to market conditions.
- Interest-Only Mortgages: Mortgages that are interest-only focus on repaying the interest first for a specific amount of time before moving on to paying toward the principal. While this can start you off with small payments, the downside is that the longer you pay interest only, the bigger your monthly payments will be in the future.
- Graduated Payment Mortgages: With this type of mortgage, graduated payments increase each year for a certain number of years before becoming fixed. This is commonly used for buyers looking to qualify for a loan when the interest rates are high.
- Government-Backed Loans: Government-backed loans, such as FHA home loans and VA loans, all help you to get the mortgage you are looking for, but often with less-strict requirements.
- FHA home loans: Backed by the Federal Housing Administration and allow more people to become homeowners. They often have low mortgage rates and require a minimum down payment.
- VA loans: For military veterans, giving them low-interest rates, reduced closing costs, no down payment, and more. These are great perks for veterans and their families to take advantage of.
- Jumbo Loans: Lenders of conventional mortgages will not often finance properties that are too high. For those looking to purchase a new home that exceeds the maximum amount, jumbo loans are often the best choice. Depending on the lender you choose, you could find a loan that is fixed rate or adjustable.
Tips For Securing a Great Mortgage
- Boost your credit score. You will find that it is possible to get a mortgage even when you have a credit score below 650. But, if you could take steps to boost your credit by even 100 points to between 700 -749, you will see tremendous savings on your mortgage rate.
- Choose the right size mortgage. As of 2023, the Federal Housing Finance Agency (FHFA) announced new conforming loan limits, raising them by 12% (an increase of $79,000 from 2022). This change could lead to savings for borrowers!
- Any mortgage under $726,000 in most areas will get you a lower rate. However, in high-cost areas such as Los Angeles, Orange, and Alameda, rates are higher at $1,089,300. Elsewhere, you’ll find rates for Ventura county at $948,750, San Diego county at $977,500, and Riverside county at $726,200.
- Keep in mind each loan comes with the costs of loan origination, regardless of the size of the loan. The larger the loan, the greater the return. So, to cover the costs, it is common to find rates a bit higher for lower loans.
- Decrease your LTV and DTI. People spend a lot of time focused on their debt-to-income ratio (DTI). And while it is important, decreasing your loan-to-value (LTV) rate will often help both. Get the best rate when you can keep your LTV below 80% and a DTI below 30%.
The Wrap Up
If buying a new home is on your 2023 bucket list, then you may not want to delay. As we mentioned, the competition is lower during the winter months. And, with predictions of fluctuating interest rates as we make our way through the year, you may not get a better opportunity than you have right now.
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