Writer: Julene Reese, 435-797-0810

Contact: Ann House, 801-468-2846

  

 

LOGAN — Many people wonder if now is a good time to purchase or refinance a home. Most real estate professionals say it is a good time to buy since home prices are down, but in the wake of the foreclosure crisis, it is important to take a hard look at the numbers to be sure a mortgage payment won’t cause financial hardship.

Lending standards are currently tighter than they have been, which is a good thing, according to Ann House, Utah State University Extension bankruptcy prevention area agent, Salt Lake County. With tighter standards, buyers are less likely to get into a home they cannot afford.

“If you want to buy now, first check your credit score,” she said. “If your FICO score is 720 or above, you can get a lower interest rate on a loan. If your credit needs improvement, go to www.ftc.gov and find out how to rebuild it. The difference you will pay with a good score and a lower interest rate will be thousands, and possibly hundreds of thousands of dollars over the course of the loan.”

For those who rent, there’s a good chance a mortgage payment won’t be much more than rent in many areas, House said. Add in the tax break, and if a buyer stays a few years, the home will start to appreciate.

She said home prices in much of the country have already dropped by 10 percent and will probably keep dropping, but as with the stock market, there’s no way to know when the market is going to hit the bottom. If a buyer’s dream home is on the market, now may be a good time to purchase it.

“Another pro to buying is that a home can potentially yield cash at retirement through downsizing, relocating to a less expensive place or through investing the cash,” House said.

Before jumping into the world of homeownership, there are downsides to be aware of, she warned. With traditional pensions disappearing and with the debt burdens most people are carrying, it is increasingly difficult for people to save for retirement. Quickly rising costs of food, gasoline and utilities are also taking their toll on consumers. If there is much uncertainty in life, now may not be the best time to purchase a home.

            For those who own a home, now may be a good time to consider refinancing, she said. This can lower the monthly payment, reduce the length of the loan and save money in the long run.

In determining whether this is a good option, House said homeowners should first decide how long it will take to break even on a mortgage refinance. This will depend on the current interest rate, the new potential rate, closing costs and how long a homeowner plans to stay in the home. If refinancing will save, for example, $50 per month on a mortgage payment, and the closing costs come to $4,000, it will take over six years to recover the cost of refinancing.

“A general guideline is to consider refinancing a mortgage when the current interest rates are at least 2 or more percentage points below what you are currently paying,” House said.

She said charges of refinancing are usually between 3 and 6 percent of the total amount of the mortgage and that certain types of refinancing options contain penalties for early payments as well as closing and transaction fees.

“Make sure to do your math, as in some cases these extra fees may offset any savings through the refinanced loan,” House said.

If the home’s value has increased, there is an option of refinancing more than the value of the current mortgage, she said. The home’s equity may be used for home improvements or other allowable expenses such as education, medical expenses or to cover closing costs of the refinance. However, it is important to use caution when doing this since years will be added to the loan, more debt can be incurred and the home will not be building value if money is drained from its equity.

“If you can do it, a smart option is to refinance your mortgage for a shorter time period,” she said. “Although the payments will be somewhat higher, you will pay less interest over the life of the loan. This will build equity more quickly and will save money in the long run.”

House said another option is to renegotiate the mortgage rate with the lender. Renegotiating a mortgage is technically not refinancing, but is an amendment to the existing mortgage. Although the interest rate may not be as low as the current refinancing rate, renegotiating can save money because there are no closing costs.

“We are currently experiencing a market correction to years of over-inflated home costs,” House concluded. “Home prices are more realistic and lenders aren’t as willing to loan out more than can be realistically re-paid. If you have a good FICO score and have been waiting to purchase, now may be the time to buy. If you currently have a mortgage at a high interest rate or not at a fixed rate, or if you have an improved FICO score, now may be a good time to refinance. It is definitely worth a phone call to your lender.”

 

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