Moving into a new house that will be your very own sounds so exciting. You just want to make the process happen as soon as possible. However, it’s important to slow down and take the time to properly understand potential mortgage loans.
These loans will be for many years and you don’t want to find out later down the road you signed a bad agreement that you have no way out of. Here are eight things you should know about your first mortgage loan.
1. Avoid Graduated Interest-Only Payment Plans
A new phase that has ushered into the mortgage arena is a graduated interest-only type loan. This is where your monthly payments start out low and only covers the cost of the principal that accrues each month on the loan. As the years go by the payments will start to get higher, where more and more of your payment will go towards the principal amount.
It may seem like a good idea to start your mortgage payments low and have them increase over time. Maybe you believe that your income will rise as the years go by. However, don’t fall into this trap. You will spend many years paying a mortgage payment each month that goes all towards the interest fees. This will not allow you to build up equity in the home the first few years you’re paying for it.
2. Beware Of Adjustable Mortgage Rates
Typically you’ll be offered either adjustable or fixed mortgage loan rates. Adjustable rates will change over time depending on the market. This could mean you will be paying much more in the future than you are now. In most cases of a 15 to a 30-year mortgage loan, individuals are better off with a fixed rate. This will ensure you always know what your payment is going to be and you don’t get any unwanted rate jumps in the future.
3. Realize Mortgage Brokers Are Not Banks
There are not very many regulations when it comes to mortgage brokers as compared to the many lending regulations imposed on banking facilities. It’s important to remember that you don’t have much of a legal backing against being talked into certain clauses and agreements. If at any time a mortgage broker tries to change any part of the agreement you decided on ahead of time don’t be afraid to tell them no.
4. Try To Avoid Paying Mortgage Insurance
Mortgage insurance is put in place to ensure the lender gets money back on their investment, the loan they give you. This insurance is paid by you each month. For those that have a low debt-to-home equity ratio, mortgage insurance is typically not necessary. However, in some cases, a lender may require mortgage insurance. Negotiate with your lender to see if you can get your loan without it.
5. Don’t Open Or Close Accounts While Applying For A Mortgage Loan
It’s a good idea not to mess too much with your credit score while trying to apply for a mortgage loan. It’s recommended that you avoid opening any new accounts, such as credit cards or loans. In addition, avoid closing out any accounts you currently have active, even if you have a credit card you don’t use. A longer credit history will provide you with better credentials to get approved for the loan you want.
6. A Higher Down Payment Means Less Interest Owed And Typically A Better Rate
If you can save money for a down payment that is more than the typical ten percent, it will greatly affect your loan. With a bigger down payment, you can typically get a better interest rate with lenders. This will also help you shorten the length of the loan and save money on the interest you will have to pay back for the loan.
7. Decide On What You Can Afford First
Don’t wait until you find the house you want to see if it will fit your budget. Instead, decide on exactly what your range is before looking at any houses. Remember that you have to pay taxes and insurance on your home as well as the mortgage. Paradigm Mortgage said, “Decide on a mortgage payment range that will fit securely in your budget without pressuring you each month.”
8. Don’t Change Your Job
One of the biggest factors that mortgage lenders take into account is your employment history. They want to ensure that they’re lending their money to someone who has a stable income. Avoid quitting your job if you know that you’re going to be applying for a mortgage loan.
Getting the ideal mortgage loan takes some time, but if you follow these eight great tips outlined above you will be sure to set yourself up for the best loan you can possibly get.