Now is the Time – Buy or Refinance

Interest Rates at Lowest in 40 Years_Landscape

If I helped you purchase a home in the last few years, you will know the author of this article.  It is my lending partyer, Rudy.  I asked if he would put together a piece that could go with the above chart that would demonstrate the perfect storm that is now in place – Low home prices at the same time as record-low interest rates:

 I have to start by saying I truly believe NOW is the time. On a daily basis, I get the opportunity to speak with many people as they do their banking.  Sometimes it’s a quick walk by my office saying “how are rates” and other times “I was wondering if you could answer a few questions for me”.  Whatever the question, I do my best to answer it with my experience, professional opinion and in a way that can be understood by anyone.  I enjoy being in the mortgage industry right now as it really couldn’t be easier to assist people save, save, save!

If you haven’t guessed, I sit and work in a Bank.  I have the pleasure to work with a great bank, in fact, it is the number one Retail Mortgage Bank in the county.  Why is this important you ask? Well, for many reasons.  At a time like this, lets call it the recovery; we are trying to find a solid foundation or floor in our market.  This applies to the economy, government, fiscal policy and for our conversation right now, the housing market.  You see, have gone through a pretty big shake…and we now sit in the aftermath.  It is obvious that economists and others alike might argue “are we really through the worst?” and I say it appears so.  Yes, there will be constant news updates about rates going up and down, the number of mortgage applications going up and down, home sales going up and down, certain banks holding back foreclosures or not and we can keep on going from there.  I would like to focus on the simple fact of the cost of money today or more specifically, mortgage rates.

As you can see, the chart here shows that we are at one extremely low range for interest rates.  We can also safely say that we are at historically low rates as well.  It’s funny to see what these changes bring forward in a time where the market is slow, the unemployment rate is too high to mention and the economy, both nationally and statewide, are anything but figured out.   I see on a daily basis what people do best, SHOP SHOP SHOP.  Rates are low, and everything might make sense to buy or refi properties…but our “ebay” or “google” culture has sometimes caused our own worst enemy…indecision.

I can remember when mortgage rates hit 5% again…towards the end of 2008.  The stimulus plans were in effect, first time homebuyer incentives were alive and kicking and the world of mortgage seems to be breathing once again.  As rates continued to slide down…and the “government incentives” started to pull back, it amazes me how much we change.  We all of the sudden start questioning whether now is the best time…or whether we should wait for rates and home prices to get lower.  Does the end of the first time homebuyer credit truly mean there is no purchase market?  I think we need to be aware and view a reminder course in what real estate is and isn’t. 

Homes provide many things for people today: A place to provide shelter, a place to grow a family, a place that we can enjoy the American dream and slowly, over time, create long term wealth.  Homes are NOT instant success stories of “get rich quick schemes”.  True, many people were able to time it JUST right…but what about the other millions and millions that were not?  What happened to buying a house as a long term investment …one that might help pay for college tuition for the kids or even create that equity to buy that dream retirement home?  The answer: Instant Gratification.  I know this might be a comical analogy, but how many people go to work and don’t have access to a loved one throughout the day?  Do we have text?  E-mail?  Cell Phone?  Facebook? Twitter?   I believe that the recent years have pulled us farther and farther away from reality.  We HAVE to save money.  We HAVE to plan ahead for the future.  We can’t risk it all on a loan that requires no money down, no income documentation and no assets?  We cannot expect to have it all, instantly.  Did we really think these “creative” “liar loans” were good for us?  NINA (No income/No Assets) and SIVA (Stated Income / Verified Assets) are really loans of the past and we will take YEARS to recover.  I even believe we will ALWAYS have scars.  

 So, back to rates.  I tell clients every day “Rates are ridiculous”  Some people ask me “is that good or bad” and I laugh as in my head, “I” am sure that it means GREAT.  You see, if we look at the chart, we see just how many years and how many people financed their homes at such a great expense.  Mortgage rates are percentages of our loans.  1% is a BIG difference in payment and in long term interest costs.   Looking at California, our market has ALWAYS been one of the strongest appreciation states and ALWAYS created so much wealth…long term that is.  Markets have gone up and down in the past and always recovered.  We may have been through the harshest downturn other than the great depression, but we WILL recover.  When we consider and decide that it IS the right time in our life to buy a home, or a great opportunity to pull cash out and pay off debt and/or fix up the house, or even simply reduce the loan term, rate, and/or payment, we start to see the real analysis. 

 In the 80’s, there were many changes to the IRS tax code.  Specifically, we were left with one major tax advantage…and that was the mortgage interest on our home.  While this isn’t a HUGE amount, it is a pretty significant savings when compared to renting.  IF we sit with our CPA and decide that it is a great way to create a tax shelter, we have a stable job, and have saved up enough money (or maybe a gift from family) to buy a house, I might suggest you REALLY think about it.  Right now, we sit in a space where the government is literally lending money at 0%; this will NOT last forever.  Banks then take that money, add a small profit margin and lend out money to consumers (that would be YOU in this story).   You see, we are able to finance hundreds of thousands of dollars at literally nothing right now and this is due to the economic storm that just swept through.   Know this, when the sea’s are choppy, the intelligent, well researched individuals  prevail.  If you are saying, “I need to know we are at the bottom”…my response “we will know (and everyone will know) six months after it passes”.  I am not suggesting that everyone run to the bank just because rates are low, I am suggesting that we truly complete a financial check up to see what is out there.  NOW IS THE TIME. 

 I encourage all my clients that I meet, whether from a great referral partner like Jenean Hill or long term Wells Fargo Bank customers, to EXPLORE.  Exploring this opportunity is FREE and it only helps satisfy that curious little voice that says “should I/we do it”.  The pre-approval process for a refinance or purchase is simple: Application; Answer a few questions; Turn in Requested Documents.  This is the process that answers the “what if” questions.  I remind you that there is NO COMMITMENT after we complete that process. That is the beauty of the home loan business that I love.  If it makes sense, it makes sense; Numbers don’t lie.  Banks have PLENTY of money to lend – believe me they do.  They simply lend if carefully now.  You must have a good credit rating, stable job and show the ability to repay your loan.  I hate to make it that simple, but it is.  Home loans aren’t the easiest thing to complete these days, but surround yourself with a great team, and you will be able to look back years from now and say “Wow, that was a hectic time, but I/we are so happy we did it!”

 The Real Estate and Mortgage Industry has gone through some pretty major changes in the last 2-3 years.  In my world, there have been more changes to the mortgage underwriting guidelines in the last two years then there have been in the last 25.  Having the right real estate team to surround you, guide you, educate you and explore with you creates nothing but opportunity to be in the best possible financial shape.  Remember one thing, it is our job to EARN your trust and business; not expect it.  It is YOUR job to review the choices and make the right decisions; we are here to show financing options and possibilities, but we do NOT drive the ship. 

 Rates move up and down every day, hour and minute.  The financial market changes due to market news, updates, reports, government actions, global activities and just about anything else that is know on the news.  It is my belief that NOW IS THE TIME.  Rates are, from a bird’s eye view pretty stable and I think we have an opportunity through the rest of the year to take advantage.  I do recommend being proactive to insure we don’t miss out on anything. We are on the path to recovery and the more we heal, the higher the cost of money (interest rates) will be.  Our market will not skyrocket up nor will rates rise quickly; our market can’t take that kind of movement nor will our government allow that to happen.  Financial decisions, however, have a lot to do about timing.  Is now the time for you to explore?  If so, you can reach Rudy at (949) 464-7839

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