Mortgage Purchasing and Refinancing Tips

All mortgages or mortgage lenders are not created equal. There are so many factors to consider when looking for a mortgage like rate, closing costs, points, fees and what type of program best fits your need.

Shopping for rates may seem like the best approach when obtaining a

mortgage but as with most important buying decisions, it may not always be the only way to shop. You certainly want to benefit from a low rate to keep your monthly payments as affordableas possible. But considering value is also a key component. Let’s look at closing costs and fees. Many lenders will quote an incredible low rate but will add in fees and closing costs that could impact your cash at the time of closing. In some cases, it could take you years to recoup what you’ve laid out in cash because a low rate seemed more enticing at the time.

Accurate information is another aspect to review.
When you call a mortgage lender today for a rate, do you discuss how long that rate would be effective? Or are there any points? What about rate lock options? Rate locks can offer you a guarantee that if the rate becomes lower during a predetermined time frame, you can lock in to the new rate without penalties. Here’s a list of questions to consider.

WHAT TO ASK THE MORTGAGE LENDER:

• What are your current interest rates?
• What type of mortgage do you think is best for me and why?
• How much time will I have before closing?
• Can I lock in this interest rate during the closing period?
• Do you have a float-down provision if the rate drops before closing?
• What closing costs, if any, do you require?
• Do I need to pay upfront escrows for insurance and taxes?
• What are your down payment requirements and do you have special programs with some flexibility?
• Can I repay early without penalty?
• How long will it take to get my application approved?
• Can I pre-qualify?
• What's the most efficient way for me to make my loan payments?
• What is your privacy policy?
• What is my credit score and how can I improve it?
• What rights do I have as a consumer to cancel this loan?

Getting the best value.
There are many things to consider when shopping for a mortgage and ethics should be one of them. Trust your instincts when you choose a lender. Are you comfortable asking him/her questions? Are they being answered to your satisfaction? Considering the myriad of choices, you want to make sure that your lender is someone who is knowledgeableand trustworthy. Get a referral from a friend, meet with a few. You’ll be able to make adistinction in the first meeting about how pleased you will be with the loan process and getting the best value will come naturally.

Here are some additional tips from the Massachusetts Bankers Association you may find helpful:

MORTGAGE TIPS -- BEFORE BORROWING

• Eliminate Debt: Get rid of or reduce as much existing debt as possible. This will make you a better borrowing candidate and improve your credit score.
• Get a credit report: Request your credit report from one of the credit agencies and review it carefully. Clear up any discrepancies before applying for a new loan.
• Put off major purchases: Delay any other major purchases to be made with debt for the time being.
• Shop around. Beware of unseemly tactics: Use caution when you see interest rates that are too good to be true. Also, you may find very attractive ads on the Internet from mortgage or Internet companies but keep in mind: Many of these “fly-by-night” operators practice “bait and switch” tactics and you may have trouble getting personal attention, requiring you to do much more work. If you’re not inclined to take on this risk, consider doing business with your local bank instead.
• Question over-aggressiveness: Keep in mind that a mortgage broker is likely to try to “push” you toward its affiliated mortgage-company lender. You could get a better deal, better service and more choice from your local bank.
• Price vs. service: Ask yourself, “What’s more important to me, saving a few dollars or getting the best service?” Try to get both, or reach a happy medium.

• What can you afford? Begin with the knowledge of how much home you can really afford. Most experts (and your lender) believe you can probably afford a house that costs up to 2 ½ times your annual gross income. If you are buying with a spouse or partner, add in his or her income to arrive at the total. Still, there are a lot of other factors that will count toward the qualification: how much cash you have available for a down payment and closing costs, the amount of debt you have and your credit history. It pays to know all of this in advance – you’ll need to make it part of your application.

• Pre-qualification: Some banks give you the opportunity to become pre-qualified so that you know before you begin home shopping just how much home that you can afford. It also tells sellers that you are serious and can work in your favor in a competitive bidding situation.

• The down payment: The most difficult challenge for many first-time home buyers is raising enough money for a down payment. If you’re in this situation, stop into your local bank and ask for help. Many lenders have special programs for first timers -- see if you might qualify. Generally, the granting of mortgage depends on the amount of money you have for the down payment and closing costs. The bigger the down payment the more affordable the mortgage payments will be.
• Debt vs. income: General rules for earnings and debt: Most lenders want your prospective mortgage payments, property taxes, insurance and any other related housing costs not to exceed 28 percent of your monthly gross income. This rule of thumb is in place so that you and your lender can have confidence that you will still be able to afford other living essentials like food, a car loan, saving for the future, etc. The sum of all debt should not exceed 35 to 40 percent of your monthly gross.
• Home-owning benefits: Besides building equity in a home, what may be the best part of paying down a mortgage is that it is one of the few consumer debts that the government gives you the opportunity to deduct on your taxes – the interest, that is. Consult with an expert, some of the other deductible items may be the points you pay at closing and certain property taxes.
• Beware of over leveraging: The investment in your own home over time will appreciate and build equity for you, making it possible and more affordable to finance other purchases or to borrow for a car or for college education. Exercise caution, however, in doing so you are further leveraging the roof over your head.

• Weekly, bi-monthly and pre-payments: Most mortgages require monthly payments. However, if you are able to make weekly or bi-monthly payments you could pay off your mortgage much sooner and save thousands of dollars over the life of the loan. This can be done formally, according to a plan that you and your bank create, or rather informally if you choose to occasionally send extra money beyond what is you regular mortgage payment. Inquire with your lender about its rules regarding these methods that can save you a lot of money.

• Lock-in: When you contact a lender ask them about their ability to lock-in the current interest rate until closing. This way, if during the closing period rates go up, you will have “locked-in” a lower rate.
• Float down: Ask the lender if it has a float-down provision that can lower your interest rate in the period before closing if rates drop – saving you more money.
• Closing period: Most lenders have a standard closing period, either 30 or 45 days. You might want to look for a longer period to give you and your lender more time to prepare to close on your loan.
• Escrows: Some lenders will require you to place extra money up front to cover one year’s worth of homeowners insurance or 3 months of property taxes. You should have a preference going into the transaction based upon your own needs. Some homebuyers like the fact that they only make one payment to the lender each month to cover the mortgage principle, interest, home insurance and taxes. Other people would rather keep the tax and insurance money in the bank or in investments as long as possible and prefer to pay the tax and insurance bills themselves.
• Save on closing costs: If you know how to do so, ask your lender if it will allow you to hire your own appraiser, inspector and title company (attorney), and if this will save you money. If you are refinancing, using the title company that handled your loan the last time may lead to a significant savings.
• Private mortgage insurance (PMI): If you do not have 20 percent of the value of your new home for a down payment, your lender may ask you to pay mortgage insurance. This is standard operating procedure and you need to budget for it. Then, as you build up equity in your home, keep track of it and don’t forget to notify the lender that you wish to stop the payments when your equity hits the 20 percent mark. If you think you fall into the category of a low- to moderate-income wage earner, ask your lender about the SoftSecond Mortgage Program that could eliminate your need for PMI.

WHAT YOU WILL NEED:

What follows is information you will need to provide your lender for purchasing a new home or refinancing:

• Where do you and/or your spouse or partner work and how long have you worked there?
• What is your combined gross income?

• What are your date(s) of birth and social security numbers?
• Do you own or rent the place where you live and how long have you lived there? What is the monthly amount of rent or the mortgage you are now paying?
• If you are a homeowner, what do you think is the current market value of your home and what do you still owe on this loan?
• What other loans do you have, what are your outstanding balances and terms, and what amount of credit card debt do you have? Who are these creditors?
• In addition to a home, what are your other assets including cars, investments, retirement accounts -- and their value?
• What are your other monthly expenses/liabilities including insurance, child support payments, alimony, etc.

AFTER OBTAINING A NEW MORTGAGE:

• What if financial trouble strikes? If you lose your job, or have trouble making your mortgage payments for any reason, call your lender immediately. Most will try to structure a payment schedule that makes sense and it can help save your credit history.

Ask a local banker to help when looking to purchase or refinance, and by all means enjoy your new home. Home ownership can be a wonderful experience -- especially if you can save a few dollars in the process.
For answers to any of your questions regarding mortgages, contact our Experts at 508-481-8300.