Buying a house is one of the biggest investments you make in your life, with six digit figures and a whole lot of hoops you have to jump through to finalize the matter. Perhaps the most complicated element of this process is mortgage. Getting approved for your loan, singing all the paperwork, calculating interest rates, down payments, closing costs, all of these aspects can be confusing on their own. Together, they create a volatile mix that requires a level headed approach to handle with your sanity intact.
Doing Research Is Always a Good Thing
Your first priority should be doing research on everything you plan to do. While understanding the precise mechanisms underlying mortgages is entirely optional, you should have a basic grasp of the way they function. Especially if you’re opting for an adjustable rate mortgage. Familiarity with the terms and basic mechanics will also help you in the next stage of research, namely looking for opportunities. While you might feel attached to a particular bank and its staff, be sure to ask multiple lenders to quote you the terms for a home loan. They can vary quite a bit, which can lead to losing or saving money in the long run.
This Rule Includes Understanding All the Fees
No complicated process can be free of fees and mortgages are no exception. Typically amounting to between 1% and 2.5% of your loan amount, closing costs are the most expensive part of a mortgage, apart from the actual payments. Including fees for underwriting, processing, home appraisal and inspection, points, pre-paid interest, and more, these are usually unavoidable. However, some lenders do impose unnecessarily high fees for some elements of the process. Be sure to ask for a good faith estimate and dispute costs that you find unusually high. This is especially important in refinancing, as you’re usually taking out a new loan to pay off the old. Every dollar spent on extra costs pushes back the break even point.
Don’t Be Afraid to Delay Mortgaging
In order to get the best possible terms, you need to have the best possible credit score (generally, for FICO you want it to be above 760). If your credit score isn’t up to spec, consider delaying taking out a home loan for a year or two, while devoting your time to improving your financial condition. The better it is, the better the terms. You might even be able to take a shorter term loan: in exchange for higher monthly payments, you pay less on interest in the long run.
Yes, Paying on Time Is a Very Good Idea
Once you finalize the loan and move in, the real issues start. The problem with mortgages is that they represent a significant financial burden. For some families, especially in an unstable economy, this burden can prove to be too much. If you foresee problems with payments, contact your lender immediately. Even a single missed payment can take out a chunk of your credit score and make you lose eligibility for the best possible terms on loans. By acting early you can work out a solution with your lender, not to mention start saving money to make mortgage payments even if your financial situation worsens.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.