A Guide to Finding and Purchasing a home
What six things you
should
be aware of before buying
a new home
Before your commit yourself to a mortgage consider these six things. They can make a big difference in final loan payments and how smoothly your home buying experience plays out.
- Get preapproved for a loan before you look for a home.
Preapproval is easy, and can give you complete peace-of-mind when shopping for your home. Your lender can provide you with written preapproval letter for you at no cost and no obligation, and it can all be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written preapproval is as good as money in the bank. It entails a completed credit application, and a certificate which guarantees you a mortgage to the specified level when you find the home you’re looking for.
- Know what monthly payment you are comfortable paying.
When you discuss mortgage preapproval with your lender, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a preapproval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lender to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.
- Determine the type of mortgage that will best suit your needs.
There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.
- Understand prepayment privileges and payment frequency options.
Biweekly payments can accelerate your mortgage payoff and save you thousands in interest. However, on the most part these programs do not come from a mortgage lender.
To achieve this you have to allow half of your mortgage to be deducted from your checking account every two weeks. It’s easy. But, there is a small “set-up-fee” and usually a “transaction fee” with every automatic deduction. Essentially they do save you money over the life of a mortgage.
However, in the internet age, banking on line and automatic deductions are readily available. You can set up your own automatic deductions including the additional principal reductions and have it go directly to your mortgage lender. Simply take your monthly mortgage payment, divide it by twelve, and add that amount to your monthly mortgage payment. Be sure to earmark it as a principal reduction. On a $100,000 loan at an interest rate of eight percent – your total savings on the mortgage would be $45,904 and seven years early on a 30 year mortgage.
- Ask if your mortgage is both portable and/or assumable.
A portable mortgage, where available, is one that you can carry with you when you buy your next home and avoid paying any discharge penalties. This means that you will not have to go through the entire mortgage process again unless you are making a move up to a much more expensive home.
An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home, and again saves you any discharge penalties.
- Only work with a Mortgage Expert
Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example they can make the process faster thereby avoiding costly delays. Typically there is no cost or obligation to enquire.