Whether personal, career or financial — so often goals get put on hold. Sometimes that’s unavoidable, other times it’s a matter of finding an alternative path to success. If your plan to purchase a new home has been stalled due to current market conditions, there are options that may bring your next big move back into sight. No one can say what’s next or predict where rates and the housing market will go. What matters most is to focus on when you’re ready to buy.
Some options to consider to get your homeownership goals back on track are adjustable-rate mortgage (ARM), FHA and VA loans. There’s also the option of buying now with the potential to refinance later when rates drop.
Before you dive in, keep two things in mind:
ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase or decrease once the initial rate expires. While many homebuyers prefer the security of a fixed-rate mortgage, an ARM can be a good choice, too.
Commonly known as a great option for first-time buyers, an FHA loan could also be right for repeat buyers, too. This option is government-backed and offers more flexible lending requirements than conventional loans. That paves a pathway to success for buyers with a credit score below conventional loan requirements or who have limited cash for a down payment. While the interest rate may be somewhat higher than that of a conventional mortgage and mortgage insurance is required, the affordable down payment as low as 3.5 percent can be a worthwhile trade-off.
A VA loan can help active service members, veterans, and eligible surviving spouses reach their homeownership goals. This option is backed by the Department of Veterans Affairs (VA) and requires little or no down payment. Even with no down payment, VA loans do not require mortgage insurance which results in an overall lower monthly payment.
This strategy is meant to help buyers who are ready to purchase get into their dream home now, and then potentially refinance in the future when rates drop. It’s important to keep in mind that no one can predict if and when rates will drop or by how much. That means for some buyers, rates may never go low enough for a refinance to save them money.
Buyers can expect to pay somewhere between 2% and 5% of the loan principal in closing costs. Typically, a 1% rate drop is enough to justify refinancing your loan. But it depends on your individual loan scenario. For example, rates will have to drop a lot more on a $100,000 loan than on a $1 million loan to make it worthwhile.
If you’re considering this option discuss it first with your mortgage loan officer. They can help you crunch the numbers and explore the risks versus rewards.
If you’re ready to buy, don’t let the daily details of the market distract you. Keep in mind that an affordable monthly payment is still possible. We’re here to help! Discussing the above options and other factors with a trusted mortgage loan officer is a great way to firm up your plan and fast track your vision to becoming reality. Find a local mortgage loan officer to discuss your situation over the phone, via email or within a branch.
Visit our first-time homebuyer’s guide to learn more about the mortgage process its steps.