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Garrison Point Advisors

Things to Consider When Financing or Refinancing Your Mortgage

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As interest rates hit historic lows, you may be thinking about buying a home, upsizing, downsizing, moving locations, or even refinancing to lock in a lower rate. In this segment of our Planning Matters series, we explore what prospective homebuyers and refinancers should consider as they enter today’s real estate market.  

Planning Ahead

If you are thinking about applying for a mortgage within the next 3 to 6 months, it’s a good idea to run the numbers. The more you know, the more confident you will be in the home buying and refinancing process. Using a free online calculator will help you calculate how much mortgage you can comfortably handle based on the home price and down payment. Keep in mind that the money that you plan to use for your down payment should be somewhere easily accessible (and in a low risk/short term asset class) in case you need quick access to it. After the 2008 Financial Crisis, many banks and institutions tightened their lending standards. Below is a chart of the median credit score of homebuyers at mortgage origination over the last 20 years. Be sure to build up your credit score, as a higher score means lower interest rates. The last step in planning ahead is document gathering. You will save time by making sure you have all the documents you need to start the mortgage process.

Median Credit Score on Mortgage Originations: 1999 to 2020

Source: New York Fed Consumer Credit Panel/Equifax. Credit Score is based on Equifax Riskscore 3.0. Data as of 3/31/20. (1) Based on Equifax credit scores. Excellent (750 and above), Good (700 – 749), Fair (650 – 699), Poor (550 – 649), Bad (550 and below).

Getting Pre-Qualified 

Although it takes some upfront homework, getting pre-qualified with a mortgage lender can save you time in the long run. Perhaps most importantly, getting a pre-approval will ensure that the price range of homes you are looking at are ones you are financially qualified for. When starting the search for mortgage lenders, start by learning about the lending landscape and  current mortgage rates. From there, our team suggests interviewing at least three mortgage lenders and using the research on current mortgage rates that you did to help you negotiate. The most important factors in selecting a mortgage broker are mortgage rates and likeability and reliability of the lenderWhile getting along with your lender is important, a lower rate has the potential to save you money over the long term.  

If you have kept up with the news lately you may have seen a plethora of headlines on current mortgage rates. Mortgage rates have hit historic lows in the past few weeks and have been on a steady decline since November 2018. If you are considering refinancing, make sure you understand how much equity you currently have in your home as well as the closing costs associated with a new mortgage.  

Fannie Mae 30 Year Fixed Commitment Rate: 2000 to 2020 

Source: Bloomberg. Fannie Mae Commitment Rates 30 Year Fixed Rate 60 Day: FNCR3060 Index. Data as of 6/30/20.

The Final Stretch

If you are putting an offer in on a new home, don’t be afraid to negotiate boldly. There are only three outcomes if you put in a belowasking offer: the seller(s) will reject it, come back with a counterofferor they may even accept it! Our advice is to let your agent handle the negotiations, but don’t be afraid to ask for a lower price. 

If you are considering refinancing, we recommend reviewing Bankrate’s key questions to ask before you refinance your mortgage.  

For most of us, buying a home is the most important financial decision we will ever make. It’s also an intensely emotional decision. Following these tips can make the process smoother and give you greater confidence. If we can provide more information about real estate, mortgages, interest rates, or anything else, including introductions to mortgage lenders or realtors, please get in touch with us.

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Garrison Point Advisors, LLC (“GPA”) is an investment advisor in Walnut Creek, CA. The GPA entity is registered with the Securities and Exchange Commission (“SEC”). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. GPA only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of GPA’s current written disclosure brochures, Form ADV Part 1 and Part 2A, filed with the SEC which discusses among other things, GPA’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.

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