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FINANCING YOUR NEW HOME IN MONTGOMERY
COUNTY, MARYLAND
THERE ARE MANY LOAN TYPES FOR YOUR
NEW HOME
Conventional financing offers many loan instruments.
Conforming and Jumbo loans can be selected to suit your needs.
If you believe you may be in your home for more than five years,
you may want to consider the always popular 30 year fixed rate
loan. If it was good enough for your parents, it's good enough
for you. BUT! ! ! There may be a better way. When most home
buyers purchased a home prior to 1990, the 30 years loan was
about the only option with the exception of the one year ARM,
which made qualifying easy.
THIRTY YEAR FIXED
Interest rates fluctuate from year to year. When a lender makes
a 30 year loan with a home buyer, they take a risk that interest
rates will not increase over the term of the loan. If a lender
makes a 30 year loan at 6% and rates increase to an average
of 8%, the lender will be losing money for every year that the
home owner carries the loan. So, lenders charge a premium for
these loans and that premium will be reflected in your interest
rate until you pay off the loan through payments over 30 years,
sell your loan or refinance your loan.
RULE OF THUMB
The longer the term of the mortgage loan, the higher the interest
rate will be. Home buyers can benefit from this rule and purchase
money for a shorter term, especially if they know they will
not be in the home for too many years.
Example:
6 1/8% Interest rate fixed for 30 years
5 1/2% Interest rate fixed for 10 years
5 1/4% Interest rate fixed for 7 years
5 % Interest rate fixed for 5 years
4 1/2% Interest rate fixed for 3 years
Paying points (prepaid interest) to the lender
will also lower the interest rate
Example:
30 year fixed rate loan
6 1/8% 0 points 30 day rate lock
6 % 3/8 point 30 day rate lock
5 3/4% 1 5/8 points 30 day rate lock
5.5% 3 1/4 points 30 day rate lock
For a slightly higher prepaid interest fee (point)
you can buy a longer loan lock.
30 year fixed rate loan
6 1/8% 1/2 point 60 day rate lock
6 % 7/8 point 60 day rate lock
5 3/4% 2 1/8 points 60 day rate lock
5.5% 3 3/4 points 60 day rate lock
Many builders will offer home buyers "incentive"
to work with the builder's "preferred lender". This
is a sum of money, $3,000, $5,000, $10,000, etc. Generally it
is to the buyer's benefit to do so, especially if the incentive
is needed to help with closing costs. We've sold many new homes
where the builder's preferred lender was charging a fair interest
rate. It is usually recommended that home buyers obtain their
loan with a lender recommended by the builder since the builder
and lender are familiar with their mutual procedures. Remember,
loan rates and fees are negotiable. We will prepare you with
competitive loan rates, terms and lender fees typical for our
market so you're prepared when you meet with the lenders.
We can't determine interest rates, but we
can prepare you to be a knowledgeable new home buyer.
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