Useful information about financing your New York home purchase

Like most New York home buyers, you may find that you to obtain a mortgage in order to finance your home purchase. If you are planning to buy a home in the Big Apple in the near future, a thorough understanding of the mortgage application and approval process, as well as current New York mortgage rates is essential.

A typical home buyer will obtain either a fixed rate or an adjustable rate mortgage to finance their home purchase. Although there are numerous variations and hybrids, there are some basic concepts that will help you gain a better understanding of New York mortgage rates as well as the loan approval process.

Most buyers choose a 30-year fixed rate mortgage if they opt for a fixed rate; however, an increasing number of buyers are choosing a 15-year fixed rate instead of the more traditional 30 year. With a fixed rate mortgage, New York home buyers know what the interest rate will be for the life of the loan. This means that a buyer will know how much they need to account for every month when they plan their finances.

For New York home buyers who opt for an adjustable rate mortgage, or ARM, the interest rate does not stay the same for the life of the loan. These loans are more complicated as the interest rate is typically tied to an index and the margin. The "index" is a rate that is set by a neutral party and is subject to change depending on the market conditions, while the "margin"  stays constant throughout the life of the loan. The "margin" is added to the index value to determine the fully indexed interest rate (i.e. the interest rate you will pay on your loan).  Most ARMs have built in caps that protect your rate from rising too much within a single year or too much over the life of the loan; however, New York home buyers must understand that as the rate fluctuates so will their monthly payment.

Both 30 year and 15 year fixed rate New York mortgage rates have been at record lows for 2012. In November, the average rate on a 30 year fixed rate loan dropped to 3.34 percent, the lowest it has been since 1971 when rate tracking began. The average rate for a 15 year fixed rate mortgage was also at a record low of 2.65 percent in November. Rates on ARMs ranged from 2.79 percent to as high as 4.21 depending on the type of ARM.

Keep in mind though that these figures represent the average interest rates. Borrowers with excellent credentials are likely to get an even better rate while buyers who are considered more of a risk by a lender may be offered a slightly higher rate. One factor that lenders look at when determining what rate to offer is a borrower’s credit score. The credit score needed to be offered the lowest rates has steadily increased over the past few years. For a new Fannie or Freddie Mac loan, a borrower typically needs to be at 765 or higher to get the best rates. That represents more than a 50 point jump from five years ago. Loans that are guaranteed by the Federal Housing Administration are a bit more forgiving; however, a borrower will need a score of 700 or above for the best rates on these loans, up 20 points since 2006.

Given the low rates for both fixed rate mortgages and ARMs, New York home buyers who are in the market to purchase a home or refinance an existing mortgage should considering doing so in the near future before rates go back up.

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