Lisa Schade

Broker, BS, CDPE, SFR

When Few Points Make a Big Difference

 

 

While I wrote recently about giving yourself some credit by improving your credit score, this time around we're going to talk about points. When it comes to buying a home, two points can make a world of difference.

Rosemary Daley, a real estate professional from Connecticut says that for many reasons, now may be the best time ever to purchase a home - especially for first time buyers. In May, 30-year mortgage rates of 5 percent were widely available and down from January's already low 5.8 percent. And rates are down a full two percentage points from August of last year.

She assures tentative prospective first-timers that "despite a turbulent real estate market, mortgages are at historic lows. Compared to just last summer, 30-year fixed rate mortgages are about a point and a half lower."

So what does this mean - especially for a first time buyer? Buying power - a LOT more buying power.

For instance, a home buyer could save $257 per month ($3,084 per year) on their payment toward a $200,000 mortgage versus if they had recently obtained a 30-year fixed interest rate compared with August of last year.

On a $200,000, 30-year fixed rate mortgage at 5 percent, the monthly payment would be $1,073 - compared with $1,330 for a 7 percent mortgage, the national average for a 30-year fixed rate last summer.

Check out this breakdown on how much further a home buyer's dollar goes on a $200,000 mortgage as rates continue to hover at historically low levels:

* 7 percent mortgage: $1,330 monthly payment (rates in August 2008)

* 6 percent mortgage: $1,199 monthly payment (rates in December 2008)

* 5 percent mortgage: $1,073 monthly payment (rates in May 2009)

Daley pointed out that another home buyer myth is that lenders are not loaning money right now due to the credit crises. "Home buyers can qualify for FHA loans with as little as 3.5 percent down payment," she says.

Reprinted with permission from RISMedia. ©2013. All rights reserved.

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