Becoming a homebuyer is of the most trying consumer activities that you will ever experience. One of the things that make purchasing a home rewarding is finding the right loan to make it happen.
A little extra effort up front will help you get the best possible mortgage terms for your situation. Small adjustments to your home loan terms can save you thousands of dollars overall.
Three Different Mortgage Routes
There are three main channels through which to obtain real estate funding for homebuyers these days; these are banks, brokers, and online.
Banks and other financial institutions – Companies that have the capital to provide the funding provide the capital for lending directly. Your bank might be the first institution that you go to for financial advice and services. Pre-qualifying with your bank is one way to make realtors and sellers see you as serious about finding a deal.
Mortgage brokers – The advantage that agents who can bring lenders together with buyers are the diversity of loan packages they can offer. Even if your bank seems to have the right offer for your home buying needs, you might get a considerably better deal from a broker that has access to many different lending sources.
Online mortgage sites – The possibilities of online lending are just getting started. While many of the online lenders stick to the same practices as brokers and banks, a few digital mortgage lenders are rewriting the rules on how to approve a home loan.
The lesson is to shop around to make sure you get the best deal on a mortgage that you can. Lenders will vary the terms they offer and may even respond to requests for alternative terms. If you choose carefully, you can save tens of thousands of dollars over the life of a home loan.
5 Tips To Find The Right Home Loan
Build a budget – Work out your household budget; add up all of your monthly expenses and your income. The numbers you write down may confirm your understanding of your finances or it might turn out to be an eye-opening experience. In any case, writing down a budget will help you to understand what you can afford and what to do before you can buy a new home.
Look at your credit report – If you have not done so in the last year, go to AnnualCreditReport.com and pull your credit history, it is the only official website authorized by Federal law to provide the information to consumers.
Get preapproval – Once you have a sense of where you are and what you can afford it is time to get pre-approval from a lender. You already know what you think about your circumstances, pre-approval will give you some critical feedback and tell you what lending professionals judge your situation and how much home you can afford.
An abundance of options – Home loans are usually either fifteen or thirty-year terms, beyond that and the laws of your state and nation almost anything goes. Lenders will give you different interest rates and points to pay at closing.
Fees are not all written the same – As with interest and points; lenders are businesses, they work on many different business models. The origination fees a lender will demand depend on how they wish to build their portfolios of loans.
Bonus Tip For Stressed Out Home Buyers
Rejections don’t matter – One rejection does not mean all will reject you, sometimes it’s you, and sometimes it’s them. Lenders write their company policies differently, and they seek to lend to consumers that fit the specific criteria of their lending policies. Try to find out the reason, adapt, and keep going. Buying a home is an intense but rewarding experience.
Remember that lenders and Realtors earn a living when you succeed in purchasing your home. Don’t hesitate to discuss your questions and desires with your Realtor or real estate broker and get the ball rolling today.
Would a lower mortgage payment make a difference in your lifestyle or family budget? If you have a burdensome pile of bills each month, these tips might help save a little on your budget.
Three Lower Mortgage Payment Options
The one most hopeful choice, with multiple variations, is refinancing your loan. The longer the time since taking out the loan you wish to replace, the more you can save by refinancing.
Leverage your equity – You might get lower mortgage payments by taking out a new conventional mortgage. This option requires that you find a cheaper package than the original loan or smaller due to your previous payments of principal that now have increased your equity.
Alternatively, you might be able to save on the mortgage insurance. If your equity has increased, either by repayments, rising home values or both, you can apply to end your policy, stopping the payments. If you can refinance with equity for a combined smaller payment and without premiums, you will double the savings.
Interest only – Loans for real estate usually combine repayments of principal and interest on the outstanding balance. Refinancing with a loan that only pays interest every month is a short-term solution at best.
A few lenders may offer an extended period of interest only payments. The down-side is either a future balloon payment or payments of interest and principal.
Adjustable rate mortgages – Lenders love loans that give them a chance to adjust to the current market rate periodically. In return for future uncertainty, lenders offer lower interest rates, fixed for some time after the start of the loan.
The initial fixed period may be as much as five years followed by yearly changes, relative to some index. If interest rates stay low, you pay a lower mortgage payment every month. On the other hand, the interest could become a burden if the rate goes up significantly. You trade short-term savings for medium and long-term risk with an ARM.
Pay More Monthly Instead
Here is a thought; maybe you want to pay less interest over the long run. If you have increased your equity and your payments are not so bad, perhaps you can refinance for a shorter term. Lenders love to get paid fast. So, if you make larger payments over fifteen years instead of thirty, you get a lower interest rate. The payment may be higher, but not by much, and you will pay much less over the lifetime of the new loan.
Issues When Seeking Lower Mortgage Payments
The one consideration when you are refinancing a home loan is that you will have to pay fees for the new loan. Your lender will tack on some combination of up-front costs and fees added to the new balance of the loan. These costs can be significant, and they vary from lender to lender. So, shop around carefully and make sure that you understand all of the costs involved clearly.
Once you have a home and making payments, your creditworthiness grows and so does your equity. The longer you keep making your payments on time, the better your position in refinancing. So, if you need to tighten your household budget, it may be an option to look around for a lower mortgage payment.
The Sixty-Day Seasoning Rule
When you are waiting for approval on your home loan, you need to prepare for this one important detail. Your lender is unlikely to regard your most recent pay deposit as part of your contribution at closing. That means your paycheck is not eligible to form part of your deposit.
Conventional home loans require a substantial deposit of twenty percent of the purchase price. If you intend to take advantage of a government-backed loan program, your deposit may be as low as 3.5 percent instead. However, even if that covers most of your deposit, your lender won’t see it that way.
Instead, mortgage lenders prefer to count only funds that posted to your accounts more than sixty days ago. The term for such balances is that they are seasoned.
To Qualify For A Mortgage Be Prepared
As the Scouts say, “Be prepared” which is an excellent motto for the stressful time that you spend house hunting and negotiating with sellers. Getting to the point of agreement is not the end of the process; as the buyer, both you and the home must qualify for mortgage funding with your lender.
By this point you will be pre-qualified, otherwise, the sellers and agents would not have taken you seriously. You will also have sought pre-approval from a lender. This all serves to put you in the position to negotiate the best deal and close on a house. However, even when you have preapproval, your lender will still have to formally propose the loan to their underwriters, who look at everything very carefully before agreeing to release the loan funds.
Get Your Borrowing Stance On Ahead Of Time
Finding out that your bank balance is somehow inadequate, even when the funds are there, is a jarring experience. Your Realtor will gladly help you prepare your finances for final approval. After all, they depend on your success to stay in business. You still need to begin the process ahead of time. The longer before you intend to purchase that you can start to gather the resources, the more smoothly the home buying experience will go for you.
If you are just now thinking about entering the home buying marketplace be patient, buying a home is a major life event, and you need to take your time to do it right. There is no point in rushing because of two significant risks. You will either regret purchasing the property after you choose it too quickly or you will hit roadblocks. These obstacles are such things as sellers passing over your offer or loan applications rejected by lenders.
In the time you spend to prepare, work to improve your credit score and put away enough funds to make a reasonable offer on a home that you like. If you do this before you begin house hunting, you will have properly seasoned cash in the bank when it is time to close the deal, pick up the keys, and start making payments on your new mortgage.
So, you think you’re ready to end your time as a renter and buy your first home. In the long-term, it’s an excellent choice, but when you begin investigating the short-term costs and labor involved it becomes much more complicated.
Buy your first home, and you’ll find that there is work to do to get there and responsibilities that renters never have to consider. The process of purchasing real estate can be stressful, and it takes time and energy.
Steps Into The Home Buying Process
First take a detailed look at your personal finances and check your credit reports. You will need to know your budget and whether you have the funds for a twenty percent deposit. Fortunately, there are FHA-backed loans with 3.5 percent down payments plus costs. You may qualify for even better terms if you are a veteran or serving member of the United States military.
Once you understand your budget and credit, speak to your bank about how to pre-qualify for a home loan. Pre-qualifying marks a milestone in home buying because it shows realtors, lenders, and sellers that you’re serious and, in principle, you have the capacity to purchase a home. From this point, you’re beginning the real journey of finding a home, which warrants a complete post.
The Issues When You Buy Your First Home
You have more payments to make as a homeowner. You have to make your loan payments every month; this usually includes payments toward principal, interest, property tax, and insurance. If you go FHA and make a small down payment, you’ll also pay mortgage insurance premium on the extended loan each month.
The fifth payment type is for homeowner association fees or condo fees. If you are buying into a community or building that has shared responsibilities you pay HOA fees. HOA covers the cost of maintenance, some utilities, and the property management contract. An HOA fee is a given for condos, if you are purchasing a house, you should still budget a similar amount for the cost of maintenance and repairs and set it aside each month.
Do Homeowners Have Lower Living Costs?
The magic of real estate is that every property is unique and that’s also a nuisance if you want to compare your options. Look at how much house you can afford to pay for a monthly mortgage payment for your current rent amount. You should then consider how much it would cost you in down payment and closing costs.
If you can save for a larger down payment and improve your credit score to qualify for lower interest rates on your mortgage the investment will pay off well in the long-term. In five to ten years you will accumulate equity and have a more settled lifestyle. It is expensive to get through the home buying process, and you will have responsibilities as never before, but you will also be a home owner, and that pleasure will make it worth struggling to buy your first home.
Alarms Will Sound When You Miss A Payment
Financial challenges, such as making mortgage payments every month, are stressful facts of modern life. If it should happen that you find family in the position of being short of the monthly payment, there are things that you can do and some other things not to do.
A Little Caution Up Stream Goes A Long Way
The best time to deal with an emergency situation with your home payments is before there is a problem. If you can proactively start your home loan to be affordable with some enough left over and a contingency plan, then you are less likely to struggle during the repayment period.
A better initial plan for your mortgage might be to buy less home than you can afford. Say, your bank will lend up to $180,000, and you can make a deposit of $45,000, for a purchase price of $225,000. Instead of financing all the way, buy a home that is more affordable. Purchase a $200,000 home, make a $40,000 deposit, keep $5,000 in savings and live with a smaller monthly payment.
Just because a lender will pre-approve you for a higher amount doesn’t mean you have to take the full amount. At least part of the extra savings on your monthly payment should also go into savings as well.
What To Do When The Mortgage Payment Is Due
In the real world, consumers often need to use all of the credit they have to get on the home ownership ladder; they find it is difficult to save for a rainy day. So, what do you do when your mortgage payment is due and the savings is gone? First, don’t attempt to ignore the situation; delaying will only make it worse when you are forced to face up to it.
As soon as you realize, talk to your lender and confess that you will be late with your payment. You are not entirely alone, the government pressures lenders to be fair and there are regulations and rules to support that goal. Because of this, you may be in a position to refinance or modify your loan.
Respond To Challenges Proactively
As soon as you find you will pay miss the payment or make it late, again, contact your lender to discuss a forbearance, modification, or a refinance package. The bank may be helpful or not, but it is in their interest to keep the payments going smoothly; you won’t know their policy until you ask. If you miss a payment without communicating with them, your lender will begin the foreclosure process.
Do some research to learn what resources your state has to help you get through the tight spot. At the same time, start looking to replace the lost income or enhance the cash flow that you have. The sooner you act and the more information you can find, the more likely you will get a positive outcome that carries you through the tough times.
When is a reverse mortgage right for you? The short answer is that reverse mortgages are for seniors. However, you deserve a better answer, and that will take a little explaining. First, there are two categories: FHA Home equity conversion mortgage (HECM) and private company loans.
Since a reverse mortgage pays you instead of the other way around, you need to have sufficient equity in your home to qualify. Additionally, like conventional home lending, reverse mortgages require that the property meets structural requirements.
The HECM Lump Sum Or Annuity
The Federal Housing Administration (FHA) provides the backing for HECM reverse mortgages and reverse annuities and place rules that are much like those of FHA repayment loan requirements. Homeowners over the age of 62 are eligible for HECMs and HUD restrictions apply for property values; these also have the lowest rates of interest for balances. Borrowers don’t have to meet any income threshold.
When is an HECM the right choice? If you need income or access to tax-free funds that don’t compel you to meet income requirements. The payout comes either as a lump sum or an annuity, similar to a home equity line of credit, but without the need to make payments as long as you or your spouse remains in the home.
Private And Jumbo Reverse Mortgages
Privately originated reverse mortgages don’t require that homeowners meet the HUD qualifications for lending. When your home value is greater than the HUD loan limit, you may wish to access oversized “Jumbo” loans. The terms can be more flexible but are often more expensive than an HECM in practice.
When is a private reverse mortgage right? If you have a property that is above the limits for HECMs, you might choose this option, although the interest rate will likely be higher. It may be suitable if you need to pay for long-term care or life insurance.
Use Care And Foresight In Choosing A Reverse Mortgage
There are some risks associated with reverse mortgages, serious hazards that could result in you losing your home right when you are at your most vulnerable. Ask yourself a few hard questions before you commit to a reverse mortgage. Can you find a cheaper alternative? How much will it cost to arrange a reverse mortgage? How will you pay insurance and property taxes? What are your long-term plans?
If you have savings or other investments, they may provide a less expensive alternative. If you have income producing assets such as municipal bonds, you will earn interest and pass them on to future generations as part of your legacy. Reverse mortgages give your assets to Wall Street ultimately.
As with any financial option, there are costs involved in setting them up. The usual title search, appraisal, and other miscellaneous third-party charges apply. There will be an initial mortgage insurance premium and origination fees.
There will be monthly fees that add to the outstanding balance for servicing and insurance. Property taxes are also a consideration and other factors. For example, your ability to maintain the property on a fixed income; if you cannot manage the upkeep, you may risk foreclosure.
If you need funds and can meet the general requirements for a reverse mortgage, make sure to investigate carefully whether it really is the best option available to you. However, if it is the right financing for you, it could be an excellent option that keeps your home a happy one and gives you peace of mind for many years to come.