1. Donít Stretch Your Loan Qualification
Limits To Buy A Home Beyond Your Budget. A home should be
a source of satisfaction and an investment not a financial albatross,
especially for first-time buyers. Borrowing heavily from family members,
selling assets, and living poor just to own a bigger or better home, makes
for larger mortgage payments and risks difficulties in the future.
Always Shop For Competitive Rates, Points, And Fees. Get at least
three bids. The most competitive lender one week may not be next week so
get (or reconfirm) quotes the same week you are ready to make the
Get An Immediate Written Confirmation Of Your Locked In Interest Rate And
Interest Rate Terms (i.e. if you are locking the rate, can you relock
if rates drop, etc.), points, and fees, you might find some discrepancies
with the figures used on the final loan documents.
Donít Agree To Prepayment Penalties. You may want to refinance or
partially prepay part of the mortgage. If there is no mention of
prepayment penalties, make sure you have an addendum attached to the
mortgage specifying that no fees will be imposed.
Understanding All The Conditions Of Your Loan: You or a professional
that you trust should thoroughly scrutinize each document. Ask questions
if you arenít sure what something means.
Pick The Right Kind Of Loan. Rates are higher on 30 year loans than on
comparable 15 year loans. That's because there is a greater risk that
rates will go up the longer the lender commits to a fixed rate. Lenders
hate holding loans at below market rates. While there is an advantage to
the predictability of fixed rates, if you expect to be transferred in 5
years, youíll be paying more than you need for a 30 year fixed rate loan.
If you want both the security of predictable payments and the lowest
monthly payment consider "hybrid" loans - those with a fixed
rate for the first five or seven years of their 30 year duration. If you
are going to be there for a shorter period, or have confidence that rates
will be dropping further, consider an adjustable rate mortgage.
If You Are Buying Rather Than Refinancing, Consider Getting A Pre-approved
Mortgage Or Contingent Loan Approval Letter. The former is a binding
commitment for a loan up to a certain amount. It can substantially
strengthen your negotiating position with the seller, but it puts pressure
on you to close a deal before the loan commitment expires. A contingent
approval is a letter from a lender that states the largest loan you would
qualify for, subject to confirmation of the financial information youíve
provided and formal approval. It will also give you additional negotiating
leverage without binding you to the lender (or vice versa). Sometimes
owner financing can work to both parties advantage. Ask the seller if
itís a possibility. If so explore further to see if there might be
mutually agreeable terms before making an offer.
Save Everything. Lenders require and provide numerous documents. Some
get misplaced, usually at the most critical time. Keep copies of
everything you send the lender and everything the lender sends you.
Take Advantage Of The Deduction. The mortgage interest deduction is
one of the few remaining tax deductible interest payments, and itís also
the cheapest form of long term financing. Consider financing/refinancing
as an alternative source of funds for home improvements or other
constructive long term investments like education. Donít get in over
your head, and never use it to finance your summer vacation or other short
Study! A lot of money is at stake You canít learn too much, and you
wonít have time to learn what you need, interview and select a lender in
the five days allowed most buyers to apply for a loan. Read the real
estate section of your local paper and books on the subject.