Interest Rates Continue at All-Time Low

As interest rates continue at an all-time low, lenders around the country are being inundated with requests from potential borrowers. To assist our buyers, Colorado Group Realty sat down with long-time local, Josh Kagan, the branch manager and senior mortgage lender at Cornerstone Home Lending, Inc. in Steamboat Springs.

How can you qualify for a loan? 

  • It’s typically a very simple process of coming up with the debt to income ratio. We can pull up someone’s credit instantly and the whole process takes about 15 minutes. If it’s a more complicated financial situation it takes a bit longer, but we can still do it in a day.

Does it make sense to get pre-qualified?

  •  Yes, as we can tell you what kind of monthly payment you can afford. We take into account the purchase price and your expenses, then  divide that against your income. As long as your situation has not altered between the prequalification process and when you find a property to purchase, the pre-qualification agreement will remain in place.

What kinds of loans are available and how does it affect the interest rate? 

  • There are still all kinds of loan available but at the moment fixed rate mortgages are popular due to the low interest rates. The shorter the fixed rate term, the lower the rate but the monthly payment is higher. Adjustable rate mortgages are almost the same rate or only very slightly lower. You can get cash out on a refinance, which is popular just now due to the low interest rates. However you will pay back at a slightly higher rate, depending on the loan to value.

How much do I need for a down payment on a loan?

  • It varies. First time homebuyers can put down as little as 3%, or even zero if they qualify for an USDA loan. For a primary residence on a conforming loan amount (in Steamboat that is $678,500 and lower), you need 5% down.  On a second home you need 10% and 20-25% on a jumbo loan.

How long does the average loan take to process?

  • Appraisals are the biggest determining factor and at the moment they are taking about a month in Steamboat. You can expect a loan to be processed from 30-45 days.

What are the costs for getting a loan?

  • Upfront costs are around $3,000, unless a borrower pays points to get the rate down. The cost covers appraisal, title fee, lender fee, recording and miscellaneous items such as credit reports and state tax stamps. Beyond closing costs, borrowers need to pay homeowners insurance and a couple months of taxes and insurance into an escrow account.

Are there fees if I pay if back early?

  • Conventional financing which follows Fannie Mae or Freddie Mac guide lines, do not currently carry penalties for early payment.

What are the penalties if I miss a payment?

  • A late payment usually incurs a fee of 5% on the overdue monthly amount. If you contact the lender ahead of time you can enter into forbearance and not be penalized. Rules vary depending on the lender, but forbearance is typically available for three months. I would caution borrowers, as you cannot refinance if you are currently in forbearance.

Can I get insurance on a mortgage, in case I lose my job or something changes in my financial circumstance? 

  • Mortgage insurance applies to the lender and not the borrower. The borrower pays the fees, but it is a protection for the lender when there is less than 20% down for a down payment.

Is there a difference between buying a condo versus a single family home?

  • When it comes to purchasing a condo, it gets slightly more complicated. In December 2020, Fannie Mae and Freddie Mac changed the rules on a condo, versus traditional properties. The condo needs to meet certain guidelines, just like a borrower does in order to qualify. Your lender will be able to help you through that process.

Does it make a difference on a loan if I buy a second home to use for personal use, versus for rental income? 

  • The rate is similar to that of a primary residence and you’d need to put at least 10%. The second home cannot be within the same area as the primary residence. In Routt County, you could have a house in Clark or Hahn’s Peak, and be allowed a property in downtown Steamboat for example. You couldn’t have a house downtown and a condo on the mountain.