If you are a previous homeowner, you know that for the amount of time spent shopping for a home, equal or more time is spent trying to figure out how to pay for it all. If you are new to the homebuyer market, welcome! Let me enlighten you to the world of mortgages. Don’t be scared, I am here to help and offer much needed and valuable insight to shopping the luxury home market of Las Vegas.
For starters, there are no one-size fits all when looking for a mortgage. Where you live, how long you plan on staying, how much cash versus debt you have and a number of other factors all contribute to the potential outcomes. These factors will not only affect the size of the home you can purchase, but also the price you will pay monthly in order to continue living in it. Unless of course you are ready to purchase in cash, in which case, stop reading and give me a call.
For the rest of you, let’s start by learning the basics and seeing the options available to the majority of luxury homebuyers in the Las Vegas area in order to find the best solution for you. Don’t be scared, there is something available for every type of buyer, especially in Las Vegas where a little goes a long way.
1. Fixed Rate Loan
This is usually the most common and widely used type of loan, which provides a fixed-rate loan with a single interest rate and regular monthly payment typically ranging from 15 to 30 years. The term depends on the variables previously mentioned like location, time and money. These factors will be used to determine how much you and for how long.
The typical home buyer that tends to use this type of loan are people that like consistency, aren’t going anywhere and like to know exactly what to expect month after month- no surprises. They are happy paying X for Y amount of years and have no problems continuing with their monthly routine. They tend to be first-time, family-oriented homebuyers purchasing for the long run. Additionally, the rise and fall of rates won’t change the terms of your loan, so you will always know what to expect. If you plan on moving in the foreseeable future, this might not be the best option for you. If you plan on staying and breaking in your new home, this is likely the best option for you.
2. Adjustable-rate mortgage
Interest rates offered by the adjustable-rate mortgage or ARM are typically lower than fixed-rate loans, but only for a small period of time. This period tends to last around 5 or 10 years. Once the grace period ends, the interest rates and payments will either go up or down depending on current market rates. So an ARM is a little but more of a gamble, where the odds may or may not be in your favor, depending on the current market but some people like to live life on the edge. Maybe you are a risk taker, or maybe you are not.
The main advantage of ARM loans is that they enable you to qualify for larger homes, at lower prices. This is because due to the lower initial rates, you are likely able to purchase something you would not be able to afford at the regular price. Another advantage of ARM is that it enables you to take advantage of falling interest rates without having to refinance, however, always keep the downside in mind, which is the complete opposite. If adjustable-rate mortgages become expensive, the rates will quickly skyrocket. Be aware, prepare and always have a backup plan for when things do not go your way.
ARM loans are usually better for homebuyers with lower credit scores and cash reserves. That being said, an ARM enables these types of buyers to obtain the dream of homeownership, at a lower cost. Just remember, the lower rates are only to start. Once the grace period ends, the rates change. However, this does give potential homebuyers more time to make up the difference in the long run. This type of loan is also good for people who know they don’t plan to be in one place too long, usually right before the rates start to skyrocket.
3. VA Loan
To those that qualify for a Veterans Affair loan, thank you for serving. This is specially designed just for you. A VA loan is exclusive for those who have served in the United States military and can be an excellent alternative to a normal adjustable-rate mortgage or fixed-rate mortgage loans. This VA loan option gives usually gives veterans the ability to purchase a pretty nice home with no money down. Additionally, it doesn’t require them to have any mortgage insurance either. Which is a double win for VA home buyers.
If it was not already obvious, you have to be an active or former member of the United States military to qualify for a VA loan. If you have served a consecutive 90 days during wartime, 180 days during peacetime, or six years in the reserves, this is not only for you but likely the best fit in order to obtain the best luxury home for the lowest price. The only downside is that the VA has extremely strict requirements on the type of home you are allowed to purchase. It has to be your primary residence, which means no rental properties or fixer-uppers, and it also has to meet their list of minimum requirements, which is pretty strict.
4. USDA Loan
A USDA Rural Development loan cater specifically to families in rural areas. This is designed with the intention of enabling families to move into better and more urban living conditions, without a huge financial burden. Since the government funds this program, there is no down payment necessary and the discounted rates are worth raving about.
These types of USDA loans enable families who are struggling financially to obtain home ownership. You will be required to purchase mortgage insurance and your debt cannot exceed your income by more than 41%.
5. Bridge Loan
The bridge loan is also known as repeat financing or a gap loan because it serves as a bridge between selling your current home and purchasing a new one. If you plan on purchasing a new home before selling your current home, lenders will bridge, for a lack of a better term, your current mortgage with your new one and combine the payments into one. Once your home is sold, you can pay off that mortgage and refinance the new one.
This is a great option for families looking to upgrade and move into a larger home to accommodate their new family members. It is a great way to transition from one space to another without having a financial crisis. A bridge loan is also great for homeowners with great credit and low debt-to-income ratio. It is also good for homeowners who do not need to finance more than 80% of both homes combined.
As you can see, all the different types of mortgages offer diverse advantages and disadvantages to the various types of luxury home buyers. At this point, it is all about what is best for you and your financial situation. If you cannot decide, go with your instinct. Chances are it will guide you in the best direction and help you buy the best luxury home on the Las Vegas market.
Things to keep in mind while weighing out the options:
1. Your current financial situation
2. How much cash you have saved
3. The current real estate and financial markets
4. Predictions for where the markets are headed
5. How long you plan to stay
6. Income now versus future income levels
7. Your comfort with risk
In general, if rates are low, it is typically best to lock in a fixed rate mortgage, regardless of income. With this plan, you can lock in the best price now, and not have to worry about future market changes. On the contrary, if you already know that you plan on moving within a year or two of purchasing your new home, then an ARM might be the better fit for you. If you are a veteran or current active member of the military, take advantage of the great options available to you. At the end of the day, it is wise to sit down and assess your financial situation to determine the most ideal and rewarding next step.
If you already have a plan of action in mind, or still seeking answers to some more questions, give me a call today and let’s figure out the best next steps to find your luxury home now. Take advantage of over 18 years of real estate experience and expansive market knowledge of not only home shopping, but also how to purchase homes in luxurious master-planned communities all across Las Vegas. I am here to help you obtain the dream of luxury homeownership today.