Mortgage Regulations Have Changed . . .
Mortgage regulations have changed significantly over the last few years, especially in the last six months, reducing the options more than ever. Subtle changes in the way you approach mortgage shopping and even the small differences in the way you structure your mortgage can literally cost or save you thousands of dollars and years of expense.
Get the Right Information
Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you inform yourself about the factors involved. Industry research has revealed 6 common mistakes that most home buyers make when mortgage shopping and they can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.
6 Things You Must Know Before Obtaining a Mortgage
Before you commit your hard earned dollars to monthly mortgage payments, consider these 6 issues. Effective consideration of these important areas can make your payments work much harder for you.
1. You Can, and Should, Get Pre-approved For a Mortgage Before You Go Looking For a Home
Pre-approval is easy, and can give you complete peace-of-mind when shopping for your home. Your local lending institution can provide you with written pre-approval for you at no cost and no obligation, and be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written pre-approval is as good as money in the bank. It entails a completed credit application and a certificate, which guarantees you a mortgage to the specified level when you find the home you’re looking for.
2. Know What Monthly Dollar Amount You Feel Comfortable Committing To
When you discuss mortgage pre-approval with your lending institution, find out what level you qualify for and also determine for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a pre-approval amount that is higher (or lower) than the amount of money you would want to pay out each month. Remember that most first time buyers are unaware of the big tax advantage given to home owners, by the IRS, when they pay their mortgage each month. This often can effectively give you between $100 to $300 extra each month! Work with your lending institution to determine what value of home this all translates into at today’s mortgage rates. This prevents you from wasting time looking at homes that are not in your price range.
3. You Should Be Thinking About Your Long Term Goals and Expected Situation, To Determine The Type of Mortgage That Will Best Suit Your Needs
There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay for your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.
4. Make Sure You Understand What Prepayment Penalties, Prepayment Privileges and Payment Frequency Options Are Available To You
Some lenders add a clause to their mortgage note which creates on obligation on your part to pay them a percentage of the remaining mortgage balance in the event you either sell or refinance your mortgage within 2 – 3 years. This catches many unsuspecting homeowners off guard when they decide to sell or refinance and discover they owe the first lender an amount that equals thousands of dollars. It is strongly suggested you refuse to accept a mortgage that contains a prepayment penalty clause.On a positive note, more frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. By simply structuring your payments so that they come out more frequently, it will significantly lessen the amount of interest that you will be charged over the term of your mortgage.For the same reason, authorized pre-payment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably. These two payment options can cut years off your mortgage, and save you tens of thousands of dollars in interest. However, not every mortgage has these pre-payment privileges built in, so make sure you ask the proper questions.
5. Ask If Your Mortgage Is Assumable
An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table, making it much easier and more desirable for a buyer to buy your home, and again saves you any discharge penalties. The buyer likely would save thousands of dollars versus obtaining a new mortgage thereby giving your home a competitive advantage when you wish to sell it.
6. You Should Seriously Consider Dealing With a Mortgage Expert
Consider dealing only with a professional who specializes in mortgages and does so on a full time basis. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example they can make the process faster thereby avoiding costly delays. Additionally they often will have access to a number of loan products and can explore which would be most advantageous to you. Typically there is no cost or obligation to inquire.