06
Mar
By First Rate Financial Group
Mortgage Tips

Consider an Adjustable-Rate Mortgage If You Plan to Sell Within 5 Years

Which is better — a fixed-rate mortgage or an adjustable-rate mortgage (ARM)? It’s a common question among home buyers and refinancing households. The answer? It depends.

Fixed-rate mortgages offer the certainty of a known, unchanging principal and interest payment for the life of the loan. This stability can aid in budget-setting and financial planning, providing homeowners with a sense of security and peace of mind.

On the other hand, adjustable-rate mortgages do not provide the same level of certainty. After an initial introductory period, the interest rate on the loan adjusts periodically based on prevailing market conditions. While this uncertainty may deter some, ARMs often feature very low initial interest rates compared to fixed-rate loans.

These savings make adjustable-rate mortgages particularly appealing for individuals in specific scenarios:

Short-Term Ownership Plans: If you intend to sell your home within 5 years, opting for a 5-year ARM could be advantageous. The lower initial payments can help maximize your cash flow during the ownership period.

Current Fixed-Rate Mortgage Holders: Homeowners currently financed with a 30-year fixed mortgage who plan to sell within 5 years might find switching to a 5-year ARM beneficial, especially if they’re seeking lower payments.

Comfort with Uncertainty: If you’re comfortable with payment uncertainty over the long term and prioritize lower initial payments, an adjustable-rate mortgage may align well with your financial goals.

Additionally, homeowners with existing ARMs nearing adjustment may consider refinancing into a new ARM to extend the teaser rate period and delay potential payment increases.

However, before committing to an adjustable-rate mortgage, it’s crucial to consult with your loan officer to fully understand how ARMs function and the associated risks, both in the near and long term. While the initial payment savings can be tempting, it’s important to recognize that with an ARM, payment structures are subject to change.

For individuals planning to sell their homes within 5 years or those seeking lower initial payments and are comfortable with payment uncertainty, an adjustable-rate mortgage can be a strategic financial choice. However, thorough research and consultation with financial professionals are essential to ensure that the selected mortgage aligns with your long-term financial objectives.

05
Mar
By First Rate Financial Group
Mortgage Tips

Maximizing Your Profits: A Guide to Utilizing Construction Loans for Fix-and-Flip Projects

Fix-and-flip projects can be lucrative endeavors for real estate investors, but they often require a significant upfront investment. One key financial tool that savvy investors use to fund these projects is a construction loan. We will examine how you can leverage construction loans to maximize your profits in the fix-and-flip game.

Understanding Construction Loans:
A construction loan is a short-term financing option designed specifically for real estate development projects. Unlike traditional mortgages, which are disbursed in a lump sum, construction loans are released in stages as the project progresses. These loans typically have higher interest rates and shorter terms, making them ideal for fix-and-flip scenarios where the goal is to sell the property quickly after renovations.

The Benefits of Construction Loans for Fix-and-Flip:

Quick Access to Capital:
Construction loans provide rapid access to the funds needed for property acquisition and renovation. This speed is crucial in the competitive fix-and-flip market, where time is often of the essence.

Interest-Only Payments:
During the construction phase, you may only need to make interest payments on the loan. This can help ease the financial burden while allowing you to focus on completing the project and preparing the property for sale.

Customizable Loan Terms:
Construction loans offer flexibility in terms of repayment schedules, allowing you to tailor the loan to the specific needs and timeline of your fix-and-flip project.

Higher Loan-to-Cost Ratios:
Many construction loans offer higher loan-to-cost ratios than traditional mortgages, enabling you to finance a larger portion of your project costs. This can free up your capital for additional investment opportunities.

Steps to Successfully Utilize a Construction Loan for Fix-and-Flip:

Thorough Project Planning:
Before applying for a construction loan, develop a detailed project plan that includes a realistic budget, timeline, and scope of work. Lenders will be more likely to approve your loan if they see a well-thought-out plan.

Selecting the Right Lender:
Choose a lender experienced in construction loans for fix-and-flip projects. Look for a lender who understands the dynamics of the real estate market and can provide the support and guidance you need throughout the process.

Applying for the Loan:
Prepare a comprehensive loan application that outlines your project’s details, your experience as an investor, and your financial standing. Be prepared to provide documentation such as project cost estimates, property appraisals, and your credit history.

Effective Project Management:
Once the loan is approved, manage your project efficiently to stay on schedule and within budget. Timely completion of the renovation is crucial to minimizing interest payments and maximizing your potential profit.

Marketing and Sale:
As the project nears completion, focus on effective marketing strategies to attract potential buyers. The goal is to sell the property quickly and repay the construction loan, allowing you to realize your profit.

Utilizing a construction loan for fix-and-flip projects can be a strategic move for real estate investors. By carefully planning your project, selecting the right lender, and managing the construction process effectively, you can leverage construction loans to maximize your profits and achieve success in the competitive fix-and-flip market.

04
Mar
By First Rate Financial Group
Financial Reports

What’s Ahead For Mortgage Rates This Week – March 4th, 2024

A number of important consumer related data reports were released last week, giving us a clearer picture on inflation impacts and the state of the economy on a broader scale. First up, looking at the First Revision of GDP numbers, we are seeing they had fallen slightly below expectations, but still showing the economy has not deflated at all as of the result of the prior years’ repeated rate hikes.

With inflation trending down, this makes for a convincing argument that rate cuts are due this year. This also sets the stage for the official consumer confidence reports, revealing mounting anxiety regarding the political climate of the nation, marking the first decline in four months.

Next up, PCE and Personal Income spending has shown that in a number of areas, inflation is still impacting a number of factors for the consumer and general cost of living. Personal spending was expected to slow, but the slowing has been more impactful than anticipated. Despite this, across lending partners and markets alike, there is a consensus that rate cuts are highly likely.

GDP (First Revision)

The growth rate of the U.S. economy in the fourth quarter was downgraded slightly to a 3.2% annual pace, but the economy continues to grow swiftly and is showing few signs of slowing down. Originally, the government said gross domestic product had expanded at a 3.3% rate in the final three months of 2023. The figure is adjusted for inflation.

Consumer Confidence

Consumer confidence retreated in February from a six-month high, partly due to the angst surrounding the U.S. presidential election. The closely followed index fell to 106.7 from a revised 110.9 in January, the Conference Board said Tuesday. It was the first decline in three months.

PCE Index

Inflation rose in January at the fastest pace in four months, based on the Federal Reserve’s preferred PCE gauge, in a sign price pressures might not return to low pre-pandemic levels as quickly as hoped.

The PCE index rose 0.3% last month, the government said Wednesday. That matched the forecast of economists polled by The Wall Street Journal.

Consumer Spending

Consumer spending in the U.S. got off to a slow start in the new year, perhaps a hangover from a big holiday shopping season. Household outlays increased by a mere 0.2% last month, the government said Thursday. It was the smallest increase in three months.

Pending Home Sales Report

Pending home sales fell 4.9% in January as rising mortgage rates pushed buyers out of the housing market, according to the monthly index released Thursday by the National Association of Realtors (NAR).

Primary Mortgage Market Survey Index

• 15-Yr FRM rates are seeing a decrease by -0.03% with the current rate at 6.26%
• 30-Yr FRM rates are seeing an increase by 0.04% with the current rate at 6.94%

MND Rate Index

• 30-Yr FHA rates are seeing a -0.07% decrease for this week. Current rates at 6.57%
• 30-Yr VA rates are seeing a -0.10% decrease for this week. Current rates at 6.57%

Jobless Claims

Initial Claims were reported to be 215,000 compared to the expected claims of 210,000. The prior week landed at 202,000.

What’s Ahead

This upcoming week, we have the non-farm payrolls which indicates how much payroll increases have kept up with inflation. Along with that is the Federal Reserve’s Beige Book and U.S. Trade Balance, which has been in a deficit for some time; although the broader impact on the economy has not yet been determined by this.