Should You Consider Refinancing?

Refinancing your mortgage is a great idea, but it could affect your credit score. Here’s how.

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Mortgage rates are still at historic lows. For many homeowners, it's a great time to refinance. Refinancing allows you to pay off your current mortgage with a new mortgage at a lower rate. Refinancing means lower monthly payments and more money left in your pocket.

But here's something important that many people don't know: Refinancing can affect your credit score negatively. You see, when you refinance, the new creditor will do a "hard inquiry" about your credit history. This inquiry can actually lower your credit score. Looking for new credit lines (like a new mortgage) equates with greater credit risk.

A hard inquiry could decrease your score by five points automatically.

How much will a hard inquiry actually lower your credit score? This depends on several factors. In some cases, a hard inquiry might not lower your credit score at all. However, if you've recently opened up multiple new credit lines (auto loans, credit cards, etc.), then a hard inquiry could decrease your credit score by up to five points. This is true if you only have a short credit history. And if you shop around for the best rate for more than 45 days, you will get multiple hard inquiries. Each of them will contribute to the total effect on your credit score.

So what does this all mean for you? Unfortunately, there's no simple answer. It's going to be a part of the calculation you have to make for yourself, which will also include the refinancing fees, your own credit history, and how much you could be saving with a refinanced mortgage.

If you're looking for help in making this decision, give me a call. I can put you in touch with several top Grand Rapids mortgage brokers.

Why Are Homebuyers Feeling Optimistic?

Why are homebuyers more optimistic than they have been in the past few years? Here’s what we found.

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Here’s a paradox for you: Right now, homebuyer confidence is at an all-time high, according to a survey performed by Fannie Mae. Furthermore, an increasing number of people, particularly renters, think now is a good time to buy a home. Yet at the same time, housing inventory remains very tight. It’s down 6.5% nationally from last year. Home prices are also up 6.9% nationally over last year.

In other words, homebuyers are optimistic at a time that the market seems to be favoring sellers. So, what's going on? Why are homebuyers so optimistic all of a sudden? Here are three possible explanations:

1. Lending is loosening up. Over the past several years, mortgage rates have seen historical lows. This has meant that homes are actually more affordable, in spite of the increase in prices. However, lending has been very tight. Fortunately, that’s changing. Lenders are approving mortgages at the highest rate since 2011, with 77% of mortgages for home purchases approved.

2. Jobs are looking good. At the moment, fewer homebuyers are worried about losing their jobs, according to the same Fannie Mae survey. It's not just job security that's contributing to greater optimism about buying a home. Overall income is higher, making homes more affordable by comparison. The median household currently has 150% of the income needed to buy a median home, compared to a historical average of just 125%

Lenders are approving mortgages at the highest rate since 2011.

3. Long-time renters are ready to buy.Millennials, the generation of people born after 1980, have largely opted out of homeownership until now. They have been renting for a longer time, putting them higher up on the pay scale compared to previous generations of first-time homebuyers. But now, many millennials are finally hitting an age when they are willing to commit to buying instead of renting. This is reflected in the Fannie Mae report, which states that much of the increase in homebuyer optimism comes from current renters.

What all does this mean for you? If you're looking to buy a home, all of the above reasons should give you confidence that now is indeed the right time to buy.

If you’re thinking about buying or selling a home, click the links above to search for homes on the MLS or find out how much your home is currently worth.

And if you have any questions about the Grand Rapids area real estate market, whether you're thinking of selling or buying, give me a call. I'm here to help. I look forward to hearing from you soon.