What has your rate done for you?

Reno/Sparks Real Estate - Buying Real Estate in Reno/Sparks, Nevada

In a world where keeping up with the neighbors is the norm, sometimes it not what you have done for your rate but what has your rate done for you? In today's market I have seen many home buyers come into my office so concerned with what's my rate going to be or what are rates today? My simple answer to them is I can give you whatever rate you want. Let's go through your situation, then we can pick a rate that works best for you. I will break down in numbers exactly what I am referring to.

Say we have a client that is looking to purchase a home. They are currently renting a home and paying $1400 a month. They have $8,000 saved up for a down payment but no real other funds to fall back on should things get tough. They are looking at a home that costs $100,000.00. After going through the application process with them we discover they have excellent credit (above 740) and not a lot of outstanding debts. My approach to this is as follows, I will present them with as many different loan options as they are qualified for. In this situation the best option for them is to go with an FHA loan only costing them 3.5% ($3,500) at closing. Looking at the assets that they have I present these rates for them to look at;

Loan 1 FHA fixed for 30 years at 4.625
Loan 2 FHA fixed for 30 years at 4.875
Loan 3 FHA fixed for 30 years at 5.375


Here is the cost breakdown of all 3.


Loan 1. 4.625 costs 2.250 in points ($2,192.96) Payment of $501.11
Loan 2. 4.875 costs 0.375 in points ($365.49) Payment of $515.79
Loan 3 5.375 costs -2.625 in points (+2,558.46) Payment of 545.78


I would let the customer then chose what fits they comfort level best. The difference from 1 to 3 is $4751.42 up front with a change of $44.67 in monthly payment. It will take them 8 years and 9 months to break even if they select to go with loan 1. By selecting loan 3 you can use the $2,558.46 in funds to pay for taxes, insurance, hoa dues, title charges and not use all of your assets. You never know what might pop up after you have moved into your new home and it's nice to have some cash to fall back on should something pop up.

So when you are with your loan officer and going over rates, ask them to show you what your rate can do for you. If you have any mortgage questions I can be reached at christopher.meert@bankofamerica.com.