Mortgages and Home Buying
Buying a house can be exciting, but also very scary. If you’re like most first-time home buyers, you are getting ready to take on the biggest chunk of debt you’ve ever had in your life. Not only are you taking on a large commitment in terms of dollars, you are also taking on a lengthy commitment in terms of your lifespan. A common mortgage length is thirty years. That is quite a commitment and a lot can happen in thirty years. Heck, you’re only legally responsible for your children for eighteen years. The mortgage company doesn’t care that your employer went under or that your elderly mother needs taking care of, they just want those monthly checks. Yes, a mortgage is a mighty big load to shoulder, but most people are eager to take on that responsibility because of the rewards of home ownership, not to mention the joy and excitement that come with the end of every month as you panic and scramble to put together enough money to keep your new roof over your head. Yes, all this can be yours, but only after you get a mortgage, which, it turns out, is slightly more complicated than splitting the atom with Tinker Toys and an Easy Bake Oven.
This article should rightly be titled “Two-hundred-fifty-three-thousand Things You Should Know About Mortgages and Home Buying,” but space, you understand, is limited. Plus, I purchased a domain name with “Ten Things” built right into it, so we’re pretty much stuck with the format. This is by no means a comprehensive guide, but it might cast an LED’s worth of light into the pitch black cavern that is the home loan process.
Here, for you to take as you will, are Ten Things I Know About Mortgages and Home Buying, which are also
Ten Things You Should Know About
Mortgages and Home Buying
- 10: Blemished credit does not necessarily mean you can’t own a home.
Yes, sterling credit will make the process easier and will lower your interest rate, but having a few spots on your credit is not the end of the world. Don’t assume that a rejection by one lending company means that no one will work with you. Try to speak directly to the lender and explain your situation and why you have these black marks on your credit. Also, use the internet to search for programs, some government-backed, designed to help get people into homes. Bad credit in your past should not stop you from owning a home. If you get slightly unfavorable terms due to your credit, you will want to look into mortgage refinancing down the line, after you’ve established a history of paying your mortgage. - 9: Pre-approved loans are your friend.
By shopping for your loan before you shop for your home, you can avoid a lot of pitfalls in the home buying game. For one thing, a person walking around with what amounts to $150,000 in his pocket has a lot more bargaining room than a person who may or may not be able to produce the money if the seller agrees to his price. Having your financing out of the way ahead of time can also help you stick to the price range you set for yourself. If you’ve negotiated a decent loan with favorable terms for $150,000, you might be more reluctant to be nudged up into a more expensive investment. Shop around for the best mortgage rates and remember to use all resources at your disposal, including the internet, to find a mortgage that suits your budget and situation. - 8: Get an independent home inspection.
Never, ever, ever leave anything to chance. Don’t assume you are dealing with honest, scrupulous people. Always be sure to get a qualified, licensed inspector to check over a property thoroughly before a single nickel changes hands. Buying a house is a huge commitment and you should never rush or take any chances, no matter how small they seem. Money spent on an inspection is money spent on peace of mind. - 7: Down payment - make one even if you don’t have to.
Yes, it is possible to get a loan without a down payment, but don’t do it. First of all, you will likely get less favorable terms when you don’t have a down payment. Secondly, a significant down payment takes a big chunk out of what you will pay in interest over the lifetime of the loan. Finally, it takes discipline to put together a down payment, and discipline is a good thing to have wen taking on a debt that you may very well have for half of your natural life. There are programs out there dedicated to helping people with down payments for home loans. Once again, do some research and see what you can find. - 6: Be prepared to write a lot of checks, often for no apparent reason.
There are a lot of additional fees that you have to pay for the “privilege” of getting a mortgage. You’re going to be paying for brokers and lenders and “points” and insurance and fees and college tuition and car payments and lunches and gas and just about everything else anyone involved in the home buying process figures they can soak you for. Examine every single document with a microscope, find out exactly what you’re going to be expected to pay and when. You don’t want to get hit with a sudden $5,000 bill at closing because of some “tenth of a percent” clause hidden in a contract. - 5: Points? Is buying a house some kind of sport?
“Points” is a fancy word meaning “money you turn around and give right back to the lender.” A “point” is one percent of the value of the home loan and many loans require that you pay a certain number of points when you assume the mortgage. One per cent doesn’t sound like much, but those points add up when you’re dealing with numbers as big as the cost of a house. When you pay points on a loan, you are essentially paying interest in advance. Points are designed to benefit the lender by increasing the yield of the loan, but now that you know that, don’t let them get away with it! When you pay points, you should get better mortgage terms. The more points you pay (up to a reasonable point), the better an interest rate you should be able to get. Conversely, if you pay no points, you are likely to get worse terms from the lender. You can use points to your advantage by buying yourself a better interest rate but always keep in mind that you need to hold the mortgage long enough for the lower interest rate to save you as much or more than you paid up front in points. If you pay $4,000 in points in order to get a better interest rate, and it will take you four years to save $4,000 due to the better interest rate, but you sell the house after two years, than you will take a loss on the points. Keep that in mind when deciding whether to buy points or make a larger down payment. - 4: Do I want a variable-rate loan?
This is a complicated issue that deserves to be treated with respect and care. However, I am a lazy man, so I am going to make a ridiculous oversimplification: If interest rates are crappy and high when you buy, a variable-rate mortgage can be your friend. If interest rates are exceptionally low when you buy your house, take a fixed-rate loan. Variable-rate mortgage interest rates are recalculated at regular intervals and if rates are going up, so will your payments. Some variable-rate loans offer very attractive terms for the beginning year(s) of the loan. That can certainly be a factor in your decision, but be sure you understand fully what will happen when those grace years are up. - 3: Get a professional Realtor on your side.
Ideally, you want to deal with a Realtor who has been recommended by friends or family, someone with a track record of success and honest dealings. However, one way or another, you’re probably going to better served by having a professional on your side than you would be by trying to go it alone. Realtors know a lot about the neighborhoods they work in, the history of home sales, and the process of buying a house. You go to a doctor when you’re sick, a lawyer when you need legal advice, an accountant when it’s tax season, etc, so don’t try to be a cowboy when shopping for a super-big-ticket item like a home. - 2: Help is available for low- and middle-income buyers.
Ask your lender about government and private programs that can help lower-income buyers get into suitable homes. A reputable lender should be able to provide you with information on such programs and you may find that owning a home is not as far out of your reach as you think. - 1: Ask questions!
Never be embarrassed to ask any question about any aspect of the home buying process from anyone involved. Never feel bullied by the process and never feel compelled to agree to anything you are not comfortable with. You should always be able to get clarification on any issue involved with your mortgage and home purchase. If you feel like your questions are being ducked or you are not getting the whole story, walk away. I cannot stress enough that you need to know exactly what you are getting into with a home purchase. No matter how small or silly you think the question might appear, ask it!
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