Beneficial Tips Focusing on Credit and Monthly Mortgage Payments

Obtaining a preapproval letter for a home loan, locating the perfect neighborhood, and then finding the dwelling that fulfills your needs for the long term is just the beginning, do not lose sight of the monthly payment expense you will incur in addition to utilities and maintenance fees. Spend the extra time researching and acquire estimates of monthly utilities, annual property taxes, homeowners insurance and various monthly mortgage payment scenarios based on money down and the loan products available to you.

  • If you make a down payment of less than 20% of the sale price of your home, you may be required to carry mortgage insurance. Also known as private mortgage insurance (PMI), it is important to remember that this coverage protects your lender in case of default, and not you. In other words, if you stop making your monthly mortgage payments, the insurance carrier will pay your lender for you.
  • Are you wondering how much you can afford when it comes to buying a home? Make a list of the properties you are interested in and use a mortgage calculator to determine how much your payments may be. If the payments are too high, you know to lower your expectations and look for a more affordable home.
  • Before falling in love with a home you cannot afford, consider getting a pre-approval with a lender. This will help you determine how much you may be approved for and will give you an idea of the price range that is a good fit for your finances.
  • It is a good idea to deposit the full amount of your check into your account, and withdraw cash in a separate transaction. This allows the lender to see exactly how much money you have coming in, rather than having the amount of your deposits reduced by withdrawals that are included on your deposit slip in one transaction.
  • Families planning to make the move from a rented apartment to their very first home should consider the details of their credit history before beginning to apply for mortgages. If you have debts or mistakes on your credit report, this can reduce your chances of being approved, or may leave you approved with a higher interest rate. Put off buying a home and work on fixing your credit first. This will give you greater chances of approval for a better deal in the end.
  • Avoid making large purchases (e.g. furniture, televisions, or even a car) on credit shortly before applying for a mortgage loan. These purchases will raise your debt to income ratio and may result in your approval for a higher interest rate. Similarly, do not apply for new credit cards prior to applying.
  • Are you trying to save money for a down payment on a home? Remember that down payments under 20% of the sale price will require PMI, which will be an added expense. Also, the greater your down payment the lower your interest rate and monthly payments may be.
  • If possible, try to double up on payments or make one or two extra mortgage payments each year. This will reduce the term of the mortgage (i.e. time until maturity) and will help decrease the amount of interest that you will pay over time.
  • When saving for a down payment on a new home, consider closing costs as well. These costs cover the transfer of the home from the seller to the buyer. They may equal 5-7% of your mortgage, which may equate to more cash than you have on hand.
  • Do not be fooled by lenders who offer super low rates in their advertisements. Unfortunately, these rates are only available to borrowers who have near-perfect credit. The rate you may receive depends on multiple factors including your down payment, credit score and history, employment status, and much more. It is a better idea to go with a lender who has great reviews and recommendations rather than those who advertised heavily.
  • Are you having trouble negotiating a better deal with your lender? Consider negotiating with the seller to get a better deal on the home. Sellers who are looking to move into their new home may be anxious to make a deal and may be more willing to work with you. Remember, the less costly the home, the less of a mortgage amount you need, and the more likely, you will obtain approved.
  • Before refinancing your mortgage, it is a good idea to determine what you are trying to achieve by doing such. For example, are you interested in shortening or lengthening the term, getting a lower rate, converting from an adjustable to fixed rate, or borrowing against the equity in your home? This will make it easier for you to decide on the details and terms of the offers, you receive from lenders.
  • Are you considering refinancing your mortgage? You may find it beneficial to stick with your current lender if you have a good payment history. They may feel more comfortable negotiating with someone they have previously worked with, and may want to reward you for your loyalty.

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