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To decide whether purchasing a home is right for you, also consider your future
plans. Do you foresee staying in the same home for at least two years? If not,
then you’ll have to pay taxes if you you’re your home. Are real
estate prices in your neighborhood reasonable? Like any purchase, the real estate
market is subject to inflated prices, buyer frenzy, and trends. It’s possible
that renting is better than buying if your neighborhood’s prices are over-inflated,
especially if you don’t plan to stay there for very long.
How Much Can You Afford?
The same factors you considered when deciding whether buying a home is right
for you, will determine how much house you can afford. Lenders will usually
calculate that you qualify for a certain amount of mortgage, but you should
consider your budget carefully. It’s not always wise to borrow the maximum
amount. Remember, affordability calculators will tell you how much you can borrow,
but not how much you should borrow.
How to Shop for a Mortgage
Mortgages are offered through several types of lenders--
commercial banks, mortgage companies, and credit unions. Different
lenders may quote you different prices, so you should apply through
several different lenders for comparison. You can also work with
mortgage brokers. Brokers arrange mortgages for you rather than
lending money directly, as would a bank. Brokers access multiple
lenders so you may have a wider selection of mortgages and terms
to choose from. Brokers Keep in mind that if you do work with brokers,
you should consider contacting more than one. This is because brokers
are not obligated to find you the best mortgage deal. In other words,
a broker isn’t working for you unless you specifically contract
one for that purpose. A broker’s loyalties are rooted in getting
the most commission for him or herself, so compare brokers, too.
Sometimes it may not be obvious to you whether you are dealing with
a lender or a broker. Some financial institutions operate as both
lenders and brokers. Be sure to ask whether a broker is involved,
when you’re shopping around. This is important because brokers
are usually paid a fee for their services that may be separate from
and in addition to the lender’s origination or other fees.
A broker’s “fee” may be in the form of "points"
paid at closing or as an add-on to your interest rate, or both.
You should ask questions so you don’t have surprise fees in
the end, at closing.
Once you’ve found a lender or broker you can work with, you’ll
need to know what type of mortgage you’d like. Home loans come in all
varieties, for all types of borrowers and scenarios. As with each step of the
home-buying process, only you can make this decision because it’s based
on your personal situation. One major decision to make is whether you’ll
want a 15-year or a 30-year loan. A 15-year mortgage means you’ll be paying
less interest over the life of the mortgage whereas the 30-year variety means
lower payments but more interest over the life of the loan.
Then there’s the fixed-rate mortgage versus the adjustable rate mortgage
(A.R.M). The A.R.M. starts out with a fixed lower interest rate for some years,
usually 5 years. After the initial period, the interest rate becomes adjustable,
depending on market conditions. Whatever type of loan you choose, you can lower
your interest rate if you pay a fee up front, at closing. This type of fee is
called “points”. So, if you pay points, you can get a lower rate.
You have to calculate whether the extra expense of “points” is worth
it to obtain the lower interest rate. Once again, your personal financial situation
will determine whether this is a good idea for you. Only you can make this decision.
When shopping for a mortgage loan, some advertised interest rates may depend
on your paying points, so be sure to ask about points.
Also, remember that lenders can have several rates and may offer different
rates and terms to different customers. This is affected by several factors
like how much you down payment is, your credit history, or your income. When
discussing mortgage loans with a loan officer, exploring various options can
save you money.
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