When buying a home in Nevada, you are actually buying two things, the purchase of the home, and the purchase of a home loan. Just as it is important to shop around to find the perfect dream home for a good price, it is important to shop around for the best deal on a home loan.
Here is a sampling of home loans, terms, and interest rates available in Nevada (as of February 2016).
BankRate reported on February 3, 2016 that the U.S. national averages were 3.88% Annual Percentage Rate (APR) for a 30-year fixed rate loan, 3.15% APR for a 15-year fixed rate loan, and 3.21% APR for a 5-year adjustable rate mortgage (ARM).
Here are examples of the lowest rates currently offered for home loans in Las Vegas, Nevada.
3.50% APR for a 30-year fixed loan or 2.75% APR for a 15-year fixed loan or 2.81% APR for a 5-year ARM
These rates are offered to a person with great credit (FICO credit score 740+), who puts 20% down.
4.13% APR for a 30-year fixed loan or 3.30% APR for a 15-year fixed loan or 3.29% APR for a 5-year ARM
These rates are offered to a person with bad credit (FICO credit score 660 to 679) who puts 5% down.
Borrowing for a Home After the Purchase Contract, Pre-Qualifying, and Being Pre-Approved
There are three ways to get a home loan.
1. The most common way is to look for a home, make an offer to purchase it (subject to getting the home loan needed), have the offer accepted, and then apply for approval of the home loan prior to the closing of the escrow for the sale of the home.
2. Pre-qualifying for a home loan is another option. In this case, the homebuyer talks with a mortgage lender, gives general information about assets, liabilities, and credit history to the lender. The lender explains what options are available for the home loan, but does not commit to making the loan.
3. Pre-approval for a home loan is the best option. Use this method with care. In the pre-approval process, the borrower submits all the necessary documentation to get the home loan. Next, the lender reviews the documents, verifies assets and liabilities, and runs the credit history report. After the borrower satisfies all the application requirements, the lender gives a written pre-approval for a loan of a certain amount and type for a limited period.
Which Is Better?
The better option depends on the circumstances of the homebuyer.
The concerns are:
- Waiting until after making an offer to purchase a home (subject to financing), means risking that the financing, with acceptable terms, will not come through.
- Pre-qualifying is good information to have, yet cannot be relied upon 100% to get a loan.
- Pre-approval is very b. However, pre-approval is only with a certain lender, for a certain loan amount, for a limited time, and for a specific type of home. The lender may not give the most competitive lending offer, the time for using the loan may run out, and/or you may fail to locate a suitable home in time. Moreover, each pre-approval process lowers your credit score slightly.
Fixed-Rate Versus Variable Rate
A fixed-rate loan stays at the same interest rate for the life of the loan. A variable rate loan has a b possibility that the interest rate will go up during the loan term, which would increase the amount of monthly mortgage payments.
Home loans, which have either fixed or variable interest rates, are available for a 10-year, 15-year, 20-year, and 30-year term. In addition to these loan periods, other short-term loans, with a variable interest rate, are available for a 1-year, 3-year, 5-year, or 7-year term. These short-term loans may be interest-only and require a “balloon” payment at the end of the loan term to pay off the entire loan, usually achieved by re-financing.
Credit History
Advertised loan rates are usually for persons who have an excellent credit history and put a substantial (20% or more) down payment. The vast majority of people do not qualify for these “teaser” rates. The interest rate for those with less than perfect credit and those making a low down payment is substantially higher.
Points, Fees, and Pre-Payment
Points are a percentage of the total loan deducted from the loan proceeds at the close of escrow. One point is one percent of the loan amount.
Lenders may charge an assortment of fees, including fees for processing documentation, fees to “lock” a specific mortgage interest rate, pre-payment penalties for paying off a loan during a certain period after it is made, and more. Before accepting any loan, it is critical to check all these fees carefully, which, by law, the lender must disclose.
Future Trends for Nevada Mortgage Rates
For many years, since 2006, the Federal Reserve held interest rates very low. The interbank rate, which is the interest rate charged when the Federal Reserve lends money to the major banks, was close to zero.
During December 2015, the New York Times reported that the Federal Reserve announced its intention to raise interest rates. This was the first interest rate increase in the past ten years. The Federal Reserve said it plans to raise the interest rates more over the next few years. When the Federal Reserve raises interest rates, the interest rates on home loans also go up.
Most experts, interviewed by the Mortgage Report, think this action by the Federal Reserve means the interest rate for home loans will increase over the next few years. Some think mortgage rates may go up by as much as one to two percentage points. The impact of a two-percent increase is not trivial.
Here is an example, using a mortgage calculator, which illustrates the impact of a two-percent change.
A person with a 30-year home loan balance of $300,000 at 3.5% APR, pays $1,763.80 per month. Over the 30-years of the loan, the total interest paid is $184,968.26.
A person with a 30-year home loan balance of $300,000 at 5.5% APR, pays $2,120.03 per month. Over the 30-years of the loan, the total interest paid is $313,212.12
The difference is$ 123,248.86 more interest paid from a two-percent increase in the loan rate.
Summary
Right now is a great time to buy a home in Nevada, while the prices are still reasonable and before the interest rates for home loans increase.
For more information about home-buying, check out Movoto’s Homebuyer Tips. Movoto real estate agents will be happy to help you learn how to understand mortgage-lending offers.
2 Point Highlight
To find the best deals for real estate financing to buy a home in Nevada, understand the types of home loans offered, then compare lenders.
To compare mortgage rate quotes, understand the details of a home loan offer, including the interest rate, fees, and pre-payment penalties, in order to make a fair comparison between offers.
