06
Nov
By First Rate Financial Group
Mortgage Tips

Understanding an Appraisal Contingency in Your Home Purchase

When buying a home, you have the option to include contingencies in your purchase contract. These protect you by setting certain conditions that must be met for the contract to remain valid. If any contingency isn’t satisfied, you can back out of the sale without penalty. Three main types of contingencies help protect buyers: appraisal, financing, and home inspection contingencies. Here’s how each can impact your home buying experience.

The Appraisal Contingency

An appraisal contingency allows you to step back from the sale if the property appraises for less than the agreed purchase price. Since lenders typically only loan up to the appraised value of the home, this contingency is essential to avoid overpaying. If the home appraisal is lower than expected, you can either renegotiate the price with the seller, make up the difference with a larger down payment, or back out of the sale without losing your deposit.

In competitive markets, leaving out this contingency can make you a more attractive buyer, but it’s a trade-off that could leave you paying above market value.

The Financing Contingency

If you’re relying on a mortgage, a financing contingency protects you if you’re unable to secure full loan approval. While pre-approval offers an estimate of what you can afford, the official loan approval depends on final underwriting. With this contingency in place, if your loan falls through, you can back out of the deal and recover your deposit.

The Home Inspection Contingency

This contingency gives you peace of mind by allowing you to have the home inspected for structural issues, hidden damage, or safety concerns. If any serious issues arise, you can negotiate repairs with the seller or even back out of the purchase. A professional home inspector can spot things the average buyer may miss, so this contingency is highly recommended for most homebuyers.

What Happens If the Appraisal is Too Low?

If the property’s appraised value is below the agreed price, you have three main options:

  1. Increase your down payment to cover the difference.
  2. Negotiate a lower purchase price with the seller.
  3. Use the appraisal contingency to walk away from the deal and get your deposit back.

An appraisal contingency can give you leverage in price negotiations, especially if the seller wants to avoid losing the sale. However, in a competitive market, waiving this contingency can make your offer more appealing, as it signals to the seller your commitment to the purchase regardless of appraisal.

Each contingency serves as a financial safeguard, providing flexibility and protection at different stages of the buying process. Including these contingencies in your offer ensures you’re not cornered into a deal that could end up costing you more than anticipated.

25
Oct
By First Rate Financial Group
Mortgage Rates

What Is A Mortgage Par Rate And How Does It Work

Think of the par rate as the raw, default rate offered by a lender. It’s not the lowest rate you can get, nor is it inflated by any adjustments. Lenders determine the par rate based on a variety of factors, such as current market conditions, your credit score, the loan type, and the loan amount.

Discount Points: Lowering Your Rate

When you’re negotiating your mortgage, you can choose to buy “discount points” to lower the interest rate below the par rate. Each discount point typically costs 1% of the loan amount and can lower your interest rate by a fraction of a percentage point. For example, if the par rate is 5%, purchasing one discount point might reduce your rate to 4.75%.

While paying for discount points increases your upfront costs at closing, it can save you money over the long term. If you plan to stay in your home for several years, buying down your rate could reduce your monthly payments and save you thousands of dollars over the life of the loan.

Lender Credits: Increasing Your Rate to Reduce Costs

On the other hand, lenders may offer something called “lender credits.” Lender credits are essentially the opposite of discount points. Instead of paying a fee to lower your rate, you accept a higher interest rate than the par rate in exchange for credits that reduce your upfront costs, like closing fees.

For example, if the par rate is 5%, you might accept a 5.25% rate, and in return, the lender gives you a credit that could cover some or all of your closing costs. This option can be attractive if you’re short on cash for closing or would prefer to minimize your out-of-pocket expenses.

However, the downside to accepting lender credits is that you’ll pay more in interest over the life of the loan. The higher interest rate will lead to higher monthly payments and increased overall loan costs, which may outweigh the short-term benefits of lower closing costs.

How Is Your Par Rate Determined?

Several factors influence what par rate you qualify for:

  • Credit Score: Lenders view borrowers with higher credit scores as lower risk. The better your credit, the more likely you are to receive a favorable par rate.
  • Loan Type: Different types of loans (fixed-rate, adjustable-rate, FHA, VA, etc.) will have varying par rates.
  • Loan Term: A 15-year loan typically offers a lower par rate than a 30-year loan.
  • Market Conditions: Interest rates fluctuate depending on the overall economy and housing market trends. Lenders adjust par rates based on these factors.

It’s important to compare the par rates from different lenders and consider how buying points or taking credits could affect your overall loan costs. A par rate isn’t necessarily the rate you should settle for, but it gives you a clear starting point for negotiations.

Making the Right Decision for You

Ultimately, the decision to accept the par rate, buy down the rate with discount points, or increase the rate in exchange for lender credits depends on your financial situation and long-term plans. If you plan to stay in your home for a long time, paying for discount points might be worth the upfront cost. Conversely, if you’re looking for lower upfront expenses, opting for lender credits could make sense, especially if you plan to refinance or sell the home within a few years.

Understanding the mortgage par rate and how it works is crucial when shopping for a home loan. Whether you choose to stick with the par rate, buy it down, or increase it for short-term savings, being informed will empower you to make decisions that benefit your financial future. 

22
Oct
By First Rate Financial Group
Mortgage Tips

Top 10 Strategies to Lower Your Mortgage Payments

Lowering your monthly mortgage payment can have a positive impact on your financial health, allowing you to allocate more money toward other needs or savings. Whether you’re experiencing financial stress or just want to optimize your budget, exploring ways to reduce your mortgage payment is a smart move. Here are ten strategies that can help you manage and lower your mortgage payments like a pro:

1. Refinance to a Lower Interest Rate
Refinancing your mortgage to a lower interest rate is one of the most effective ways to reduce your monthly payment. If interest rates have dropped since you first secured your mortgage, refinancing could save you hundreds of dollars each month. Be sure to factor in closing costs and fees to determine if refinancing makes financial sense for you.

2. Extend Your Loan Term
Lengthening the term of your mortgage from, say, 15 years to 30 years can lower your monthly payments by spreading out the cost over a longer period. However, keep in mind that this will increase the total interest paid over the life of the loan.

3. Consider a Mortgage Recast
If you’ve recently received a financial windfall, such as a bonus or inheritance, applying it toward your mortgage principal through a mortgage recast can lower your payments. This option doesn’t require refinancing or a new loan but allows you to reduce your balance and, as a result, your monthly payments.

4. Eliminate Private Mortgage Insurance (PMI)
If your down payment was less than 20%, you’re likely paying PMI. Once you’ve built up 20% equity in your home, you can request to have PMI removed, which will lower your mortgage payment immediately. Refinancing may also help eliminate PMI if your home has appreciated.

5. Appeal Your Property Tax Assessment
If you believe your home’s assessed value is too high, you have the right to appeal. Successfully reducing your property tax assessment could lower the amount of property taxes you’re required to pay, and in turn, reduce your overall mortgage payment.

6. Shop for Lower Homeowners Insurance
Your homeowner’s insurance can be bundled with your mortgage payments. By shopping for a better rate on insurance, you could reduce this portion of your payment. Be sure to balance costs with adequate coverage to protect your home and belongings.

7. Rent Out a Portion of Your Home
If you have unused space in your home, consider renting it out to generate additional income. Renting a room, basement, or even a garage apartment can provide a steady income stream to offset your mortgage costs.

8. Make Biweekly Payments
Switching from monthly to biweekly payments can reduce your mortgage faster. By making a half-payment every two weeks, you’ll make an extra full payment each year, which can help reduce your balance and total interest paid over time.

9. Explore Loan Forbearance
If you’re facing temporary financial hardship, forbearance might allow you to pause or reduce your mortgage payments. While this is not a permanent fix, it can provide relief during difficult times. Keep in mind, that you will have to repay the deferred amount later.

10. Pay Extra Toward Principal
If you have financial flexibility, paying extra toward your mortgage principal can lower the amount you owe more quickly. Reducing your principal balance will not only help you pay off the loan faster but can also lower future interest payments.

Lowering your mortgage payment is a smart financial move that can offer you peace of mind and more room in your budget. Whether through refinancing, recasting, or other methods, exploring your options is key to finding what works best for your situation.