In 2022, the prime rate went up by 4 points, going from 3.5% to 7.5%. This happened because the Federal Reserve wanted to better manage inflation. By July 2023, the prime rate had gone up to 8.5%

But what does all of this actually mean? What is the prime rate, and how does it impact financial products like credit cards and loans? Why does it fluctuate and how?

What is the prime rate?

The prime rate refers to the best possible interest rate a lender can offer to a borrower. Only the most creditworthy of borrowers with the lowest risk of default are eligible. As a result, the prime rate is typically reserved for corporations.

Individual financial institutions determine the prime rate, not the federal government. However, the prime rate is heavily influenced by the federal funds rate set by the Federal Open Market Committee (FOMC). In most cases, the prime rate equates to the current federal funds rate plus 3%.

How does the prime rate impact financial products?

Lenders use the prime rate as a benchmark for determining consumer interest rates on financial products like loans and credit cards. For example, a low-risk borrower might receive the prime rate plus 9% (compared to 15% for high-risk borrowers).

When the prime rate fluctuates, so do the interest rates consumers receive. Prime rate fluctuations also impact variable-rate products like credit cards, adjustable mortgages and home equity loans.

What makes the prime rate go up and down?

The prime rate isn’t fixed, has no limits and can fluctuate over time. Fluctuations tend to coincide with changes in the federal funds rate, the benchmark most commonly used to determine prime rates. But the prime rate can also be impacted by inflation and loan demand.

Want to learn more about your loan options? Get in touch.

Homeownership is a significant milestone in many people’s lives. It’s not just about finding the perfect house; it’s also about ensuring that your finances are in order to support this long-term commitment.

This newsletter will help guide you through some essential steps to prepare your finances for homeownership:

1. Assess Your Financial Situation: Calculate your monthly income, expenses, and existing debt. Understanding your limits and capabilities will help you determine a realistic budget for your future home.

2. Establish a Budget: Create a budget that includes all housing-related expenses, such as mortgage payments, property taxes, insurance, and maintenance costs. Remember to leave room for unexpected expenses to avoid any financial strain in the future.

3. Save for a Down Payment: A general rule of thumb is to aim for 20% of the total cost, but it’s important to note that you can often have a much lower down payment if you’re willing to pay for private mortgage insurance (PMI). Consider setting up a separate savings account dedicated to your homeownership goal.

4. Improve Your Credit Score: Review your credit report, identify any errors and take steps to improve your score. Pay your bills on time, reduce your debt-to-income ratio and avoid taking on new debt in the months leading up to your mortgage application if you can.

5. Get Pre-Approved for a Mortgage: Before you start house hunting, get pre-approved for a mortgage. This process will help you understand how much you can afford and can help make your offer more attractive to sellers.

6. Plan for Closing Costs: In addition to the down payment, you’ll need to plan for closing costs, which typically range from 2% to 5% of the home’s purchase price. Include these costs in your budget and save accordingly.

7. Consult with Professionals: Seek guidance from professionals, such as mortgage experts, real estate agents and financial advisors, who can provide valuable insights and help you navigate the process.

If you have any questions or would like to learn more about your financing options, get in touch.

Low-income, first-time homebuyers may qualify for a low-interest, deferred payment loan of up to 17% of the purchase price for down payment assistance and 4%, up to $10,000 in closing costs assistance.

Overview

• The loan funds must be used to pay a down payment and closing costs on the purchase.

• The home you buy must be your primary residence.

• The purchase price may not exceed $589,000, subject to periodic adjustments

• Qualified buyers’ family income must not exceed 80 percent of the San Diego County Area Median Income, also called the AMI.

• You will need to contribute a minimum of three percent of the purchase price.

• You must not have owned a home in the last three years.

• There are no payments on the loan until you refinance, sell, pay off the first mortgage, or no longer occupy the property as your primary residence.

• Your loan repayment will be made in one payment that equals the original principal loan amount plus any accrued interest.

• You should talk to a lender about your ability to qualify for a mortgage.

• Before you can use this program, you will need to complete an educational class provided by one of these organizations: CalHome/ HUD-approved Homebuyer Education Providers.

Eligible Property

• You may be able to use this program to buy a new or resale single-family home, condominium, townhome or manufactured home on a permanent foundation.

• The home you purchase must be in an unincorporated area of San Diego County or in the city of Carlsbad, Coronado, Del Mar, Encinitas, Imperial Beach, La Mesa, Lemon Grove, Poway, San Marcos, Santee, Solana Beach or Vista. For all other cities, please contact the appropriate agency for more information.

• Before your loan can be approved, your new house will be inspected to ensure the required standards are met. Please see Before the Inspection.

How to Apply

• Call (888)942-5626 or email us at loans@goaom.com for more information.

Homeownership can be a pathway to building generational wealth — in fact, owning a home is so closely linked to long-term stability that it’s been one of the few life goals that’s just as common today as it was 50 or even 100 years ago.

But how does homeownership help families build wealth? What makes real estate a transgenerational tool to achieve financial security?

Numerous studies have shown that owning a home is not merely a personal goal, but a financial goal that can have a multigenerational impact. There’s more than one way that homeowning can benefit individuals and families when it comes to financial security:

Homeownership as an Investment: As property values increase, so does the value of the homeowner’s equity. This equity can be used for future investments or passed down to the next generation.

Forced Savings: Not only are mortgage costs typically less per square foot than rent, but they also help build your equity each month — in other words, you are making payments toward your future financial health.

Tax Benefits: Homeowners can leverage deductions for mortgage interest and property taxes. These deductions can reduce your taxable income, which can often result in a lower tax bill.

Stability: Owning a home can offer families a sense of permanence and belonging within a community, which can lead to better mental health and well-being.

Passing Down Wealth: As the value of a home appreciates, it can become a substantial asset that can be inherited by loved ones. It can be sold to fund other investments or continue as the family home where a new generation of memories can be made.

While a house can become a foundation for building generational wealth, it’s important to consider the potential challenges and financial barriers that can arise. Additionally, it’s important to weigh the pros and cons carefully and explore all your financing options.

Get in touch if you’d like to discuss your mortgage options or other loan opportunities.

For both homebuyers and homeowners, understanding how property liens work is important. In fact, they could impact your ability to buy a specific house or make a home cost more.

Fortunately, finding out if a property has a lien against it isn’t too hard — nor is settling a lien once one is in place.

Here are common questions and answers about property liens to help cover the important facts.

Q: What is a lien? 

A: A lien is a claim against a home or other asset (boat, car, etc.). It means the owner owes an entity money, and unless the debt is settled, the debtor can seize the asset to cover the unpaid balance. There can also be tax liens against the property when the owner doesn’t pay their taxes.

Q: Can you still buy a home if it has a lien? 

A: You can buy a home that has liens against it, but there are risks. Most importantly, a lender won’t give you a loan until the lien is settled.

Q: Should you avoid a home with a lien against it? 

A: If your dream house has a lien against it, you will need to settle the lien before buying it. You could pay the liens off yourself as part of the purchase or, in many cases, the seller can use the sale profits to settle them before closing.

Q: Are there ways to protect yourself? 

A: It’s a good idea to work with a title agency with buying a home. They will be able to do a title search and identify any liens against a home you’re interested in. You can also purchase title insurance, which protects you if any unknown liens surface later on.

There are other topics you’ll want to familiarize yourself with before becoming a homeowner. Get in touch today for more guidance.