When it comes to your mortgage, just a few factors can mean the difference in saving (or spending) thousands of dollars. However these factors are simple to understand and easy to navigate once you’re aware of them. That’s why we’re shining the light on seven secrets to consider when financing your home:
Bankers and mortgage lenders use two guides to determine how much loan you can afford:
1. Payment-To-Income Ratio.
This compares your income to the mortgage payment you’re considering. The “payment” is the mortgage payment (principal + interest) plus property taxes and insurance (PITI).
2. Debt-To-Income Ratio.
This refers to all your major monthly financial obligations, including car, credit card payments and outstanding debts. Your lender will compare your total debt to your ability to make current payments with your new home loan added into the equation. Here’s the key: since each mortgage company sets different limits on your debt-to-income ratio, find a lender who is motivated to loan you the money.
Before you start looking for a home…
1. Find a MOTIVATED lender.
Ask your REALTOR® to refer reputable lenders to you. The lender will give you better service because they want to keep getting those referrals.
2. Get pre-APPROVED, not just pre-qualified.
You’ll have more power to negotiate price and terms because sellers know you can close on the transaction.
Your ability to afford a home will relate to…
1. The price.
2. Your down payment and the amount you will finance.
3. The interest rate and points of your loan.
4. The term of your loan: 15-year, 30-year.
5. Your loan type. Fixed vs. variable rates are common but there are many loan packages to choose from.
Study each of these items and the relationship between them so you can understand what your mortgage lender is talking about. Knowing these specifics will help you choose the loan that will be the best deal for your situation.
Learn industry lingo so you can confidently keep up with the conversation by knowing terms like …
1.ORIGINATION FEE:
what most mortgage companies charge to “originate” a loan.
2. DISCOUNT POINTS:
pre-paid interest amounts that can be used to buy down (or lower) your interest rate over the life of your loan.
3. LOCK PERIOD:
the period of time a quoted interest rate/discount point combination can be guaranteed. The shorter the lock, the lower the rates.
4. EXTRA FEES:
small items such as document preparation, underwriting fees.
A lender will answer them without hesitation. Some questions to ask are…
1. Will I be charged an origination fee? If so, how much?
2. Will I be charged separate discount points? If so, how much?
3. Will I be charged any of these separate fees: processing, document preparation, underwriting, tax service or flood certification?
4. Will there be additional fees at closing?
5. Is there a Lock Period with this loan? If so, how long?
Take time to evaluate one program against another. As you do, think about your long-term goals. How long will you own this home?
Is your income going to change in the near term? What direction are interest rates going? When you talk to several lenders, you get a good picture of all the costs you’ll have to pay to get the right home loan for you.
You can save thousands of dollars in interest by making one extra mortgage payment every year! Help minimize the interest you’ll pay by increasing payment frequency. You can make your own mortgage acceleration calculation:
Take your monthly principal and interest payment and multiply that number by 13. Then divide the total by 12 to get your new “accelerated” monthly payment.
This can make a world of difference in savings to you – and your ultimate net worth!