Making Mortgages Work to Your Financial Advantage – Being a homeowner is a huge undertaking. As a homeowner, you’re responsible for mortgage payments, property taxes, maintenance on the home, and the exterior upkeep as well. They’re all major responsibilities but the one responsibility that’s the most important, and that will affect your ability to handle the responsibilities listed above, is selecting an affordable mortgage loan; the key to that is know what your financing options are and how to use those options to your advantage. Three steps is all it takes.
The first step in using your financing options to your advantage is to shop around for up to three mortgage lenders-whether they’re brokerage firms or bank-direct lenders-to foster the financing of your mortgage. Find firms / mortgage consultants that are patient, willing to answer your questions directly and that appear to genuinely care about helping you find a good mortgage loan. Do not move forward with the second step until this is done.
The second step is to order your credit reports from Transunion, Equifax, and Experian. The goal here is simple: To find out your credit standing before you have a mortgage consultant make an official inquiry. Once you have your credit reports, look to see which report has the lowest credit score; use that number as the credit score you give to mortgage consultant to help them determine the types of loans for which you may be eligible. That way, you’ll know what your mortgage loan options are in a “worst case” scenario.
The third step after you’ve chosen a your potential mortgage lenders and have your credit reports in-hand is to look at all of the financial aspects of each mortgage loan your chosen mortgage consultants offer you based on that credit score. More specifically, you should pay attention to the (1) mortgage rates, (2) mortgage points, (3) mortgage down payment requirements, (4) mortgage loan fees, and (5) private mortgage insurance requirements. Here’s a look at what you need to know and ask in order to make sure you select the best (aka least costly) mortgage loan:
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Mortgage rates are the interest rates at which a lender agrees to loan you money for your mortgage. The rates for a proposed loan can be fixed, variable, or a combination.
- Where can I find a list of the current mortgage rates your firm offers?
- Are the listed rates daily, weekly, or monthly rates?
- How will I know whether the rate is fixed or adjustable?
- For the adjustable mortgage rate loans, how often do the rates change?
Mortgage Down Payment
The mortgage down is like any other initial payment; it’s simply a way to show the lender that you’re willing to financially invest in your home purchase so they’re not taking all the risk. Generally, the larger down payment you can make, the better. With that said, here’s what you should ask:
- What is the minimum down payment required for each loan?
- By how much will my mortgage payment decrease if I pay a larger down payment than
Mortgage points can be a fee applied to your loan; they can also be a way to decrease the cost of your loan. Therefore, be sure to ask:
- On which of the loans is purchasing points to decrease my interest rate an option?
- What is the actual dollar cost of each point for X loan?
- By how much will each mortgage point purchase decrease my mortgage loan payment?
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Private Mortgage Insurance (PMI)
Private mortgage insurance is an additional cost that some lenders require of homebuyers to protect their investment in case you default on the loan. Some buyers are required to pay it; others are not. Therefore, anytime you’re applying for a mortgage loan, ask:
- Based on the down payment I am able to make and the loan types I’m eligible for, will I need to pay for private mortgage insurance?
- How and from where can I get PMI?
- By how much will my private mortgage insurance increase my mortgage payments?
- At what point will I be released from being required to have private mortgage insurance? » What can I do to not have to pay PMI?
Mortgage Loan Fees
Mortgage lenders often have fees they attach to loans, which means more money out of your pocket. Now, there’s no way to get around paying some fees but you can minimize the amount of the fees you do pay. So, be sure to ask:
- Are your fees based on the mortgage loan amount, set fees, or a combination?
- Where can I find a list of your mortgage loan fee schedule?
- Where can I find an explanation (disclosure) of each fee?
Once you have the answers to all of the above, sit down and compare each of the loans. Be sure to consider the up-front expenses as well as the monthly costs and overall costs of the home purchase. Putting the numbers side-by-side in black and white will help you to see which loan(s) are the most fiscally smart. Admittedly, this may not be the fastest or most convenient way to shop for a mortgage but it is the smartest. Therefore, take the time and put in the work. If you do, you’re sure to end up with a mortgage that will allow you to enjoy your home and live comfortably with cash to spare!