March 7th, 2016 6:48 AM by Jackie A. Graves, President
Buying a home is a huge financial commitment, and finding the
right mortgage can be a confusing process — especially for first-time
homebuyers. Comparison shopping is the key to getting the best deal, and you’ll
want to ask yourself, “How
much house can I afford?” before getting too far into the process.
are six important questions to consider when deciding which mortgage is right
generally come in two forms: fixed or adjustable rate. Fixed-rate mortgages
lock you into a consistent interest rate that you’ll pay over the life of the
loan. The part of your mortgage payment that goes toward principal
plus interest remains constant throughout the loan term, though insurance,
property taxes and other costs may fluctuate.
interest rate on an adjustable-rate mortgage fluctuates over the life of the
loan. An ARM usually begins with an introductory period of 10, seven, five
or even one year, during which your interest rate holds steady. After that,
your rate changes based on an interest rate index chosen by the bank.
look good to a lot of homebuyers because they usually offer lower introductory
rates. But remember, your rate could go up after your introductory period, so
be sure you’re comfortable with the chance your monthly mortgage
payment could rise substantially in the future. Using the terms of
the loan, you can calculate what your payment might look like in different rate
is an upfront fee — 1% of the total mortgage amount — paid to lower the ongoing
interest rate by a fixed amount, usually 0.125%. For example, if you take out a
$200,000 loan at 4.25% interest, you might be able to pay a $2,000 fee to
reduce the rate to 4.125%.
for points makes sense if you plan to keep the loan for a long time, but
since the average homeowner stays in his or her house for about nine
years, the upfront costs often outweigh interest rate savings over time.
there are negative points. It’s the opposite of paying points: A lender reduces
its fees in exchange for a higher ongoing interest rate. It’s tempting to
reduce your upfront fees, but the additional interest you pay over the life of
the loan can be significant. Carefully consider your short-term savings
and your long-term costs before taking negative points.
costs usually amount to about 3% of the purchase price of your home and are
paid at the time you close, or finalize, the purchase of a house. Closing costs
are made up of a variety of fees charged by lenders, including underwriting and
processing charges, title insurance fees and appraisal costs, among others.
You’re allowed to shop around for lower fees in some cases, and the Loan
Estimate form will tell you which ones those are. Shopping for the right lender
is a good way to save money on a mortgage and associated fees.
you settle on a mortgage, find out if you’re eligible for any special programs
that make home-buying less costly. For example:
speaking, a lower down payment leads to a higher interest rate and paying more
money overall. If you can, pay 20% of your home’s purchase price in your down
payment. However, if you don’t have that kind of cash, don’t worry. Many
lenders will accept down payments as low as 5% of your home’s purchase price.
aware: Low-down-payment loans often require private mortgage insurance, which
adds to your overall cost, and you’ll probably pay a higher interest rate. Put
down as much as you can while maintaining enough of a financial cushion to
weather potential emergencies.
these last tips as you’re buying a home:
on a mortgage is an important decision that has huge implications for your
financial future. Ask smart questions and explore all of your options to save
on costs and find the right loan.
By Deborah Kearns – To view the
original article click here