In Depth Look at Mortgages and Interest Rates for Los Angeles Real Estate

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The cost to borrow money is close to nothing nowadays. Red Blue Realty presents this tip sheet to help you understand everything about mortgages and interest rates.

Los Angeles Real Estate

Understand the complex world of financing real estate

Don't let getting a loan end your real estate dreams.

With interest rates recently hitting record lows, many are wondering what it means for Los Angeles real estate. First things first, interest can be simply defined as the price of borrowing money. Right now, there is so much money available that competition between lenders has dramatically driven down the cost of borrowing money -- that is, the interest rate.

For those considering a home in Los Angeles, there has never been a better time to buy; but where to begin?

Federal Housing Authority
For many first-time home buyers, the Federal Housing Authority (FHA) will not only back private mortgages, but often for a lower minimum down payment and with more flexible credit and income requirements.

While conventional loans typically require a down payment of 5-20% for Los Angeles real estate, the FHA only requires down payments that can be as low as 3.5%! Moreover, FHA loans are typically easier to get than conventional loans because the requirements are less rigid.

The FHA does not, for example, require such an extensive credit score or credit history for its loans. FHA-approved lenders will often determine financial competency through other means, such as the buyer’s history with paying rent, utility bills, etc.

The FHA is also flexible when it comes to homebuyers who have a rocky history with real estate -- whether it was a foreclosure, bankruptcy, or short sale -- so long as the appropriate amount of time has passed.

All in all, an FHA-guaranteed loan is an affordable and flexible option for those who are considering purchasing one of the many Los Angeles homes for sale.

Conventional Mortgage
Contingent on current market conditions, roughly 1/3 to half of all mortgages are conventional mortgages. What this means is that Fannie Mae or Freddie Mac will guarantee -- or in other words, purchase -- 30-50% of all mortgages.

The down payment required for a conventional mortgage is usually 5-20%. One of the biggest advantages of a conventional mortgage is that the mortgage insurance premium is cancelled when a homeowner’s equity meets a target level.

Lastly, it’s important to note that, in contrast to an FHA loan, there are many types of conventional mortgages. Although in general, conventional mortgages come in three forms -- fixed-rate, adjustable-rate, or hybrid.

Fixed-Rate Mortgage
For those attempting to finance one of the many Los Angeles homes for sale, fixed-rate mortgages are a very popular option. A fixed-rate mortgage is simply a mortgage that has a fixed interest rate for the entire life of the loan; or as the old saying goes, “what you see is what you get.”

What’s great about fixed mortgages is that the buyer doesn’t have to worry about interest rate fluctuations. The trade-off is, of course, that if the interest rate decreases, the home owner is still paying the higher rate. But for many, the consistency and predictability of a fixed-mortgage is worth it.

Adjustable-Rate Mortgage
In contrast to fixed-mortgages, the interest paid on an adjustable-rate mortgage (ARM) varies according to the Los Angeles real estate market conditions and benchmarks set by the lender.

What this means is that the mortgage payment can change -- for better or for worse -- at predetermined and agreed-upon points in time, which could be once every year, once a quarter, once a month, and so on.

Those with strong, predictable incomes should consider an ARM, because it can save a lot of money in the long-run -- after all, greater risk means a greater potential reward.

Hybrid Mortgage
A hybrid mortgage is a mix between a fixed-rate mortgage and an adjustable-rate mortgage. While the benefits and risks of a hybrid mortgage will of course vary with the terms, a common outcome is to have initially lower, fixed-rate monthly payments, and then less predictable payments later on. What’s interesting is that many of the popular ARMs are actually hybrid mortgages.

The 7-year ARM, for example, is really a hybrid mortgage that enables a home owner to have low, predictable monthly payments for the first 7 years of the loan, and then adjustable-rate mortgage payments for the latter 23 years of the loan.

Ultimately, there are so many different financing solutions available at such incredible interest rates that there is no excuse for not buying a home. To get started, contact Red Blue Realty today for the perfect Los Angeles real estate agent!

Email: Contact(at)redbluerealty(dot)com
Phone Number: 1 - (855) 66-RBREALTY or 1- (855) 667-2732

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Christopher Rosiak
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