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What You Can Do Now as Mortgage Rates Inch up in the Pandemic

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Mortgage rates in the U.S. plummeted during the pandemic, reaching record lows by the end of 2020 and the first month of 2021.

In February this year, mortgage rates began to inch up but remained near historic lows. In March, the rise continued and experts are forecasting that mortgage and refinance rates will continue to grow in 2021. It is now time to review your options and act immediately if you want to benefit from current mortgage rates before they rise further.

Homeowners

If you have at least 20 percent equity in your home, you can get refinancing to take advantage of current low mortgage rates. This will lower your monthly mortgage payments. If you have less than 20 percent equity you can try to get refinancing if you have a good credit rating.

You can also get cash-out refinancing to consolidate your debts. By cashing out part of your home value you can pay off existing debts such as personal loans, student loans, car loans, and credit card loans. You are better off paying a mortgage with low-interest rates than multiple loans that have higher interest rates. If your property has room to spare, you can consider getting an FHA multifamily loan to build a multifamily duplex, triplex, or quadruplex to rent out.

If you only have a small area to spare in your lot, consider building an accessory dwelling unit (ADU) instead. This is smaller but can accommodate a couple. You can choose to rent out the ADU and remain in your home, or you can move to the brand new ADU and rent out your main home.

You will earn more by renting out the larger property. Moving to the ADU from the old house can be ideal for couples who are now empty nesters. If you have no spare lot area but your existing home is now too big for you, you can get a loan to renovate it into a duplex, or multiple apartments. You can stay in one unit and rent out the rest.

Another alternative is to sell your existing house and buy a new one. If you choose a smaller and less expensive home, you can set aside a nest egg from the sale of your old home. You will also have lower monthly mortgage payments for your new home.

First-time Buyers

If you are currently renting, this is a good time to seriously assess if you are ready to buy your first home. You must, of course, have a steady income. If you are employed, you must have job security despite the pandemic. If you have a business, it must be stable even amid Covid-19.

You must determine your debt-to-income (DTI) ratio by checking your gross monthly income against your current debt payments, such as credit card payments, auto loan payments, and insurance premiums. You need a 36 percent DTI ratio to get a home loan.

Mortgage lenders also use your DTI to determine how much monthly mortgage payment you can afford, and therefore, the amount of the loan you will receive. This, in turn, determines the price you can afford in buying your home.

Your credit rating must be good to excellent so that you can qualify for a home loan. Because of the current economic climate, many mortgage lenders are requiring a mortgage rating of at least 620. There are free resources online where you can check your credit rating.

You must also have enough savings to cover down payment, mortgage closing costs, and house repairs once you have bought a home.

Make sure to get rates from several mortgage lenders because there can be wide disparities between them. Check and compare not only their mortgage rates but also other fees. Look at the annual percentage rate (APR) which is a calculation of the total cost of the loan. It includes not only the interest expense but also all other fees and costs in obtaining the loan, such as broker fees, closing costs, rebates, and discount points, among others.

Once you have everything prepared, be ready to compete with many other buyers in the housing market. The demand is high nowadays and there are not many houses available. Get a preapproval letter from your mortgage lender because this will give you an edge over other buyers.

Timing Is Key

Mortgage rates are still relatively low and if you want to benefit from them, you must act now. As mortgage rates continue to rise, the timeliness of your decision is crucial, whether you are a homeowner or a first-time buyer. If you grab this opportunity, you will have much to gain. You will achieve something good out of the pandemic.

Meta title: How to Take Advantage of Mortgage Rates Before They Soar
meta desc: Mortgage rates are slowly rising after dipping to historic lows in the early days of the coronavirus pandemic. You must act now if you want to benefit from it.

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