Finding a San Luis Obispo Mortgage that Makes You Feel Right at Home
San Luis Obispo mortgage rates have come down significantly in the past 30 days, which has created another great opportunity not only for home buyers, but also for those looking to refinance an existing home loan.
Without going into detail about what caused the so-called mortgage meltdown that has affected so many homeowners in San Luis Obispo and throughout the U.S., the key point to understand today is that underwriting criteria has changed. That means the process of getting approved for loans is much more stringent now, but that is for your protection as a borrower.
Obtaining a San Luis Obispo Mortgage Today
In today’s housing market, it is extremely critical that you not only get the right loan, but that you do not over-commit yourself. Just as staying within your means on consumer purchases is a key element in prudent financial planning, so too, is it critical when it comes to obtaining the right home loan.
Instead of going to the edge of affordability, consider limiting your housing costs–mortgage payments, property taxes and homeowners insurance–to 25 percent of your gross income. That’s a much more sustainable level for most people, financial planners say, than the 33 to 38 percent lenders are typically willing to give you.
Fixed Rate Vs. Adjustable Rate
Although most people looking for a loan focus on a 30-year fixed rate, lenders offer many different loan solutions. No single loan is best for all circumstances; some loan types work better than others, depending on individual circumstances and lifestyles. The key is to decide what loan best satisfies your needs, your lifestyle, and your current personal financial situation.
A fixed rate loan gives you the peace of mind that the interest rate and payments will not change. If you are planning to live in a house for less than five years, if you know you’ll be relocating in the near future, or if you are reasonably certain your income will increase sometime soon, an adjustable rate mortgage (ARM) may be the best option.
Here’s a quick comparison: On a loan amount of $300,000, a principal and interest payment on a 30-year fixed rate at 5.875% would be $1,775. That same loan amount in a 5-year adjustable rate at 5.240% would be $1,655, or a savings of $120 per payment. Over five years, that would mean a savings of $7,200.
While adjustable rate loans can be risky for those who are stretching to buy a home, an ARM can be a smart tool, too. Just make sure you discuss all of the pros and cons with your lender and your tax advisor before making a final decision on which loan best suits your needs.
If you’re thinking about refinancing, you’ll need to consider these key factors:
- Interest rate of your current mortgage versus the refinanced rate
- Type of loan you currently have
- How long you plan to stay in your house
- New payment versus existing payment
- Fees and closing costs
If you’re thinking of selling in the next three to five years, the amount you save on refinancing may not cover the costs associated with closing.
One way to save money and time is to refinance with the same lender who issued your original mortgage loan. You have a relationship established, and that can help you through the loan process.
Refinancing isn’t something you should enter into lightly. Review the required Good Faith Estimate and Truth in Lending Disclosures closely. Once you run the numbers, you may find that the long-term savings will offset the costs related to refinancing. Then you can take the money you save each month from your reduced payments and put that to better use.
