Six Things You Need to Know Before Buying a Home
Mortgage
regulations have changed significantly over the last few years, making your options wider
than ever. Subtle changes in the way you approach mortgage shopping, and even small
differences in the way you structure your mortgage, can cost or save you literally
thousands of dollars and years of expense. 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 that there are six common mistakes which most homebuyers make while
shopping for a mortgage that can have a significant impact on the outcome of this critical
negotiation. If handled correctly, the result will be a mortgage which will cost you
less over a shorter time period.
Before
you commit your hard earned dollars to monthly mortgage payments, consider these six
issues. Effective consideration of these important areas can make your payments work
much harder for you, and that means your home will be paid off much sooner.
1.) You can, and should, get preapproved for a mortgage before you begin searching
for a home.
Preapproval is
easy, and can give you complete peace-of- mind when shopping for your home. Mortgage
brokers can obtain written preapproval for you at no cost and no obligation, and it can
all be done quite easily over-the-phone. More than just a verbal approval from you
lending institution, a written preapproval 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 are looking for.
2.) Know what monthly dollar amount you feel comfortable committing to.
When you discuss
mortgage preapproval with your mortgage broker, find out what level you qualify for, but
also pre-assess for yourself what monthly dollar amount you feel comfortable committing
to. Your situation may give you a preapproval amount that is higher (or lower) than
the amount of money you would want to pay out each month. By working back and forth
with your mortgage broker to determine what this monthly amount is, and what value of home
this translates into at today’s rates, you won’t waste time looking at homes
which are not in your price range.
3.) Make sure you think about your long term goals and expectations to determine the
type of mortgage which 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 to 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 privileges and payment frequency
options are available to you.
More frequent
payments (for example weekly or biweekly) can literally shave years off your mortgage.
Simply by structuring your payments so that they come out more frequently, you will
significantly lessen the amount of interest which you will be charged over the term.
For the same
reason, authorized prepayment 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.
These two payment
options can cut years off your mortgage, and save you thousands of dollars in interest;
however, not every mortgage has these prepayment privileges built in, so make sure you ask
the proper questions.
5.) Make sure your mortgage is both portable and assumable.
A portable
mortgage is one which you can carry with you when you buy your next home and avoid paying
any discharge penalties. This means that you will not have to go through the entire
mortgage process again unless you are making a move up to a much more expensive home.
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.
6.) You should seriously consider dealing with a Mortgage Broker.
Mortgage Brokers
are the best kept secret in the industry. While enlisting their services can make a
significant difference in the cost and effectiveness of the mortgage you obtain, you never
pay the broker for his or her services, as they are paid by the lender. This
valuable service is extended to you at absolutely no cost and no obligation.
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