Look Inside! Discover 7 Tips for Avoiding the Biggest Mortgage Mistakes Learn the Insider’s Secrets to Getting the Best Deal on Your Next Mortgage Most people approach applying for a mortgage with a “don’t ask, don’t tell” policy. The whole process is a little confusing, and sometimes down right perplexing. If this is your first time buying a home, or if you are buying a second home, applying for a mortgage can seem a bit
overwhelming. But the best defense is a good offense – being informed and understanding the process can actually save you money. In this report, we’ll show you some of the ways you can save money when applying for a mortgage.
by Matt Kelchner
7 Tips for Avoiding the Biggest Mortgage Mistakes
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Find the Best Mortgage Program for You
Getting a mortgage loan is far different situation than it used to be. In the last decade, more and more innovative mortgage programs are being offered by lenders. The good news is that more people than ever can qualify for a home loan. Even better, with the various loan options, you can find loan programs that let you increase the value of the home available to you and also find a program that lets you create the right payment structure for you – the right total monthly payment. When you work with a reputable mortgage broker or loan officer – someone who is available locally to answer your questions and concerns – you’ll find your mortgage options expand. Many loan officers are like financial counselors; the right agent can help you become pre-qualified for a
loan, resolve credit problems, even help you get into a home when you didn’t think it was possible. Remember, you mortgage isn’t based on your net income (the amount you earn after taxes), but is instead based on your gross income. You might not realize what a dramatic difference that can make to your loan amount. Even before you find the right home, a mortgage agent will let you know what the guidelines are for qualifying for a loan, what documentation you’ll need to provide, how long you should expect the loan to take to close, and what could potentially cause delays in the process. If you don’t have an agent that’s willing to discuss this with you – you don’t have the right agent.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
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Private Mortgage Insurance
When you buy a home, especially first time buyers, there may be an extra monthly charge tacked on to the mortgage payment. This charge is called PMI or Private Mortgage Insurance. PMI is necessary when your down payment is less than 20 percent of the purchase price. The PMI insures lenders against the owners defaulting on the loan above the amount the lender would receive at sale foreclosure. The PMI usually adds somewhere between $100 and $150 to each month’s payment. Once you’ve paid your mortgage down to the point that the loan principle is less than 80% of the purchase price, the PMI should drop off of your payment. In the meantime, you are stuck paying that amount, which
doesn’t go towards your principle, interest, or escrow, and is not deductible on your taxes. Is it really necessary to carry the PMI – after all, it seems like you could save some money each month? Actually, a talented mortgage agent can help you find ways to avoid the dreaded PMI. It sometimes takes a little creativity, but you can take a loan without having to pay PMI, at least in most cases. If you have an existing home loan, check to see how much your loan is in comparison of the value of your home. If your loan is less than 80% of the house value, and you are still paying PMI, you can get the PMI eliminated from your monthly payment.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
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Do Low Interest Rates Equal Low Mortgage Fees?
For the last couple of years, mortgage interest rates have been so low that many people have taken advantage of the rates to get a into a home. Some are finding that buying a home is as affordable as renting, especially with the low interest rates.
quote “retail” mortgage rates. When you establish a relationship with a local mortgage agent, your mortgage agent bases their fees on wholesale rates with a profit factored in – they are able to make a profit while still providing a significant savings over the large corporate banks.
Not Always
Interest rates have been increasing slightly, but it still is a great time to buy a home. However, just because the interest rates are low, don’t assume that the mortgage fees are low as well. Some mortgage brokers assign fees to their mortgages on a sliding scale. When you work with reputable and trustworthy mortgage agents, you’ll find that they are more than willing to disclose their fees and are honest about how the fees are structured. You should be able to complete the mortgage process without having to shop for a better mortgage deal. In fact, some large, national brokerage companies suggest shopping for mortgage rates. You’ll find that most of the lenders
Ask your mortgage agent to provide a good faith estimate of their loan costs. If the mortgage agent is willing to provide a good faith estimate, it could be an indication that they are a willing to provide the kind of service you expect. Another good reason for establishing a relationship with a mortgage agent is that you are more likely to get accurate information when it comes to the application fees. Ethical mortgage brokers will only charge two fees: the processing fee and the broker fee. Many of the unethical brokerages add other fees that are considered “junk fees”, such as fees for administrative costs, couriers and document preparation. 4
7 Tips for Avoiding the Biggest Mortgage Mistakes
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Why Your Mortgage Closing Date Matters
Most people don’t give much thought to when their loan closes – they just want to make sure that it does close. But there can be quite a bit of difference from closing your loan at the end of the month or the beginning of the month. Interest on your mortgage is calculated from the date you close to the date that your loan is repaid in full. Interest payments are usually set up to coincide with the calendar month and the principle payment. When you close on your loan, you pay the interest for the loan from your closing date to your first mortgage payment. This interest fee is included with your closing costs.
So, if you close at the beginning of the month, you’ll have to pay interest for the time between the close date and the next payment. Let’s say you close on the 2nd of the month. You’ll pay the interest for that 28 day period in your closing costs. That can be quite a bit more money than you initially planned. Of course, on the other hand, when you close at the beginning of the month, you don’t have to make a mortgage payment until the following month. All in all, you will pay the same amount of money for interest and your payment over the long run. But when you close at the beginning of the month, you have to come up with higher closing costs than you would if you closed at the end of the month.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
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Adjustable Rate Mortgages Aren’t For Everyone
A lot of people focus on the amount of their monthly mortgage payment. In an attempt to keep their payment as low as possible, many people elect to take out an Adjustable Rate Mortgage (referred to as an ARM). Many mortgage brokers suggest adjustable-ratemortgages as the solution for everyone; in fact, some buyers feel pressured to take out an ARM. What most buyers aren’t considering is that while the introductory rates may be low, eventually the buyer may get hit with a huge, growing payment. Most ARMs have a low interest set for a period of time: one, two,
five or seven years. After the initial agreed upon period, the loan rates fluctuate along with the mortgage rates. While the mortgage rate is relatively low right now, it’s impossible to predict whether the rates will drop or sky rocket. Your payment may sky rocket along with the interest rates. ARMs are a great alternative to buyers that only plan to stay in the home for five or seven years, or know that they will refinance in a few years. If you plan to stay in the home for a longer period of time, you may find that a fixedrate is much more affordable over time.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
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Avoid a Jumbo Loan
Rising home prices has had some ramifications on mortgage limits and mortgage interests. The Federal Housing Finance Board each year assigns a maximum allowable size for a standard mortgage. If your mortgage amount is over this standard amount, you are forced to add basis points to your interest rate – the mortgage exceeds the standard set by Freddie Mac or Fannie Mae, so the properties are considered high-risk to the lender. The current conforming loan limit is $300,700.
Each year, at the end of the calendar year, the Federal Housing Finance Board raises the conforming loan limit. If you are interested in a home that exceeds the current conforming loan limit, you can wait to buy and close on the loan (usually about 60 days after your offer for the home) until the end of the year. If your loan amount is close to the edge of the conforming loan limit, you can use a standard rather than jumbo loan, which saves you from paying the extra basis points. If you think your home price will be close to the conforming loan limit, wait until November to purchase your home.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
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Locking Into Interest Rates – Good or Bad?
Conventional wisdom has always been that home buyers should lock into an interest rate. In times of interest volatility, rates would rise substantially in the 60-day period required to close a loan. The buyer would often be stuck with a higher mortgage than they’d anticipated because of the higher interest rate. Sometimes owners found their potential credit amount maxed out to the point that they couldn’t afford the home at all. One solution for these buyers was to lock in their interest rate. When they first extended the offer and started the paperwork process, the buyers make an agreement with the lender that if their loan closes within a certain period of time, they would receive the interest rate at the time of the offer.
Whether you should lock in your rate is really dependent on the interest rates and the fluctuation. With all time low interest rates, many buyers are negotiating with their lenders so that the rate is only locked in if the interest rate increases. If the interest rate decreases, the buyer takes advantage of the lower rate and the decrease in the monthly mortgage payment. Interest rates are slowly starting to increase – it’s a good idea to clarify with your mortgage agent that you want to will lock in a rate if the rates increase. If you do choose to lock in interest rates, check to see if there is a fee attached with the locking and if you can also lock in on points.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
Ask the Right Questions A mortgage is both a complicated and intimidating process. Along the way, you should feel very comfortable asking your mortgage agent any questions. For instance, before you complete the loan, ask whether there are any prepayment penalties on the loan. Many loans are structured for consumers with less than perfect credit carry penalties. While you may get a slightly lower interest rate if you are willing to accept the penalty, this may not be the best option for you. This is something you should discuss with your mortgage agent based on how long you plan to be in the home.
because the loan companies are sharing very confidential financial information with others. You need to protect your privacy by knowing exactly who has access to this highly sensitive information.
When you use large national mortgage companies, you may discover that they company is outsourcing your application process. This can affect you
Call me. I work with several qualified real estate agents that can help you find the perfect home, and I will help by saving you money in the process.
Finally, if you get to the end stretch of the loan process, and something just doesn’t feel right, know that you can back out of the loan. You can back out of the loan up to the day of closing. You can find another loan agent. Even if you are refinancing a mortgage, you have three days after you sign to change your mind and find another mortgage agent.
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7 Tips for Avoiding the Biggest Mortgage Mistakes
About Matt Kelchner My service focuses on providing clients with a stress-free lending experience and helping real estate agents build loyal clients. ‘I believe that doing good business starts with treating clients like they’re family and understanding what’s important to them, supporting them in the community, and helping them keep their own vision of the ‘American Dream’ alive.’
Matthew A Kelchner Sr. Mortgage Consultant O: (602) 758-3459
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