D.C. Strong in Loan Choices, Too

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As we enter the final months of 2014, we find a couple of outstanding news items in Washington, D.C. Real estate continues to be strong, mortgage interest rates are low and the Washington Nationals are National League East Division champs and are in the play-offs. Times look good for the nation’s capital.

The economy is moving forward in a nice fashion. The jobs outlook is improving. Inflation is at bay. This has been the catalyst for the Federal Reserve to keep interest rates low. Europe’s economy is not as robust as the United States’. This is good for anyone who has an adjustable rate mortgage that is set against the LIBOR index.

The LIBOR – short for London Interbank Offered Rate – is the basic rate of interest used in lending between banks on the London Interbank market and also used as a reference for setting the interest rate on other loans.

The current value for LIBOR is 0.59. Most LIBOR-based Adjustable Rate Mortgages have a margin of 2.25 percent. If one’s ARM is adjusting this month, the new rate would be 2.84 percent. (2.25 + 0.59 = 2.84 percent) That’s good news for anyone whose ARM is adjusting.

Interest rates for most conventional 30-year fixed rate mortgages are holding around 4 percent with little or no points. Rates for jumbo mortgages (above $625,000 in the D.C. metropolitian area) are also just above 4 percent with no points. Rates on government-sponsored FHA or VA loans are in the high 3-percent range. Mortgage interest rates are lower today than a year ago.

Rates on Home Equity Lines of Credit (HELOCs) are as low as prime. Prime is currently at 3.25 percent. Rates on Adjustable Rate Mortgages for five and seven year terms are in the low- to mid-3-percent range.

Underwriting standards still require full documentation. This means pay stubs, bank statements and W2s for most customers. If one is self-employed or owns investment property, tax returns for the last couple of years will be required. If you have a very small adjusted gross income (AGI), this will limit your ability to borrow money.

Get pre-approved before you go house shopping. A pre-approval – not to be confused with a pre-qualification – takes a full loan application and is underwritten. This will give you an edge when competing against another potential borrower. Many real estate agents will not work with a buyer who does not have a pre-approval. They want to know the client with whom they are spending time is good to go.

2014 remains an excellent time to buy a home and get a mortgage. Prices are strong, and interest rates are still low. This combines for a decent affordability index. The D.C. market remains one of the strongest in the nation.

Bill Starrels lives in Georgetown and is a mortgage loan officer. He can be reached at 703-625-7355 and bill.starrels@gmail.com. NMLS#485021

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