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Home Mortgage Questions Answered Here

home-buyersThe greater things in life aren’t usually easy to get your hands on. It is not easy to find a mortgage that works for you. You need to fully understand your options and have the right information to make an informed decision. Use the advice here to ensure you get the best rates for your mortgage.

Try getting pre-approved for your mortgage. It helps you know what you’re able to spend before you bid on properties. It also helps you avoid getting attached to a home that is out of your price range. The process is generally simple: you contact a mortgage lender, submit the personal and financial information, and then wait for their response. Some information in this process will include the amount you can afford and your loan’s interest rate. You will receive a pre-approval letter from your lender, and then you’ll have the funds as soon as the seller accepts the bid. Your pre-approval process may not be this simple, but it could be.

Getting the right mortgage for your needs is not just a matter of comparing mortgage interest rates. When looking at offers from different lending institutions you must also consider fees, points and closing costs. Compare all of these factors from at least three different lenders before you decide which mortgage is best for you.

A down payment is usually required when you are applying for a home mortgage. Certain lenders give approvals without a down payment, but that is increasingly not the case. Prior to applying for a loan, ask what the down payment amount will be.

Get mortgage loan estimates from at least three different mortgage lenders and three different banks. By shopping around, you may get a lower interest rate, pay fewer points and save money on closing costs. It’s almost always preferable to get a fixed interest rate. With variable rates, you may not know from month to month what your mortgage payment will be.

Before applying for refinancing, figure out if your home’s value has gone down. Though things may seem constant, it may be that the lender views your home as being worth far less than you think, hurting your ability to secure approval.

What do you do if the appraisal does not reflect the sales price? There are limited options; however, don’t give up hope. You can dispute the appraisal and ask for a second opinion; however, you will need to pay for the appraisal out of your pocket at the time of the appraisal.

Approach adjustable rate mortgages with caution. You may get a low rate for the first six months or so, but the rate can quickly increase to the current market rate. If the market rate goes up, your rate can go up as well. Just keep that in mind when you are considering that option.

ARM is a term referring to an adjustable rate mortgage, and they readjust when their expiration date comes up. However, the rate does get adjusted to the current rate at that time. This could cause you to pay a higher interest rate.

Make sure that you have a good amount of savings before you get yourself into a home mortgage contract. There are not certainties when it comes to the economy or job stability. To protect yourself you want to have enough money saved to make your payments for many months in case the worst does occur.

When trying to figure out how much of a mortgage payment you can afford every month, do not neglect to factor in all the other costs of owning a home. There will be homeowner’s insurance to consider, as well as neighborhood association fees. If you have previously rented, you might also be new to covering landscaping and yard care, as well as maintenance costs.

Do not pay off all of your old bills until you have talked to a mortgage consultant. If your bills will not have a negative impact on your ability to get a loan, you can worry about paying them later. You don’t want to spend lots of money to pay them since this can affect the amount of available income you have.

Keep your credit score in good shape by always paying your bills on time. Avoid negative reporting on your score by staying current on all your obligations, even your utility bills. Do take out credit cards at department stores even though you get a discount. You can build a good credit rating by using cards and paying them off every month.

Know your credit score before you try to get a home mortgage. If your credit score is low, work on raising it. This is important to do before you buy a home with a mortgage. You are more likely to get a good deal on your home mortgage when you raise your credit score first.

You should understand the home loan process before getting one. This will take time, energy and knowledge. That is where the advice here comes in handy. Use the information here if you want to gain a better understanding of the loan process.

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The Home Mortgage Process Explained

When you are shopping for a mortgage, the single most important thing to remember about ‘mortgage points’ is that there is more than one kind. There are three different mortgage-related meanings for the term ‘mortgage point,’ and you must understand exactly which type of mortgage point your lender is talking about when discussing your loan. After all, you’re the one who will pay the mortgage points and figure out which ones are tax-deductible. The first definition of a mortgage point is mathematical. In the mortgage industry, a ‘mortgage point’ means 1.0 percent of an amount of money, explains Doug Duncan, chief economist and a senior vice president for the Mortgage Bankers Association. For example, for a $100,000 loan, one mortgage point would equal $1,000. If the loan were for $173,500, one mortgage point would be $1,735, and so on. The term mortgage point also can refer to prepaid interest or to fees for loan-related services, or both. Duncan explains the most common meaning of mortgage point – often referred to as one discount mortgage point — ‘is simply prepaid interest. If a lender can receive part of the interest payment upfront, he or she will often lower the interest on the rest of the debt.’ Most lenders will gladly trade pre-paid interest in return for a lower rate because no one really knows how long the loan will actually last. Will the buyer sell the home or refinance it in one year? In five? Few mortgages last the full 30-year term of the loan. ‘Let’s say you took out a $100,000 mortgage today with no mortgage points at 5.5 percent for 30 years,’ Duncan says. ‘If you are willing to pay one mortgage point of prepaid interest — $1,000 up front — the lender will lower the interest rate because you have increased the certainty of getting a return on investment-a profit.’ This is not the only way the term mortgage point is used, Duncan adds. ‘Sometimes lenders will characterize other expenses in the same way, as a percentage of the loan.’ Rather than putting an actual price tag on costs such as origination fees, document preparation charges, and all the other expenses involved in getting the money, lenders often express them in terms of mortgage points.

So instead of setting a fixed price, the lender gives the charges a value that is a percentage of the total borrowed, charging you two mortgage points, three mortgage points, three-and-a-half mortgage points or even more to get the loan. The amount of paperwork doesn’t change, and neither does the time spent working on the deal, but some lenders make sure the costs match the size of the loan. It is important to remember that these mortgage points have nothing to do with return on investment. They are just a convenient way for the lender to charge for the time spent drawing up the papers. The various uses of the term ‘mortgage points’ clearly are among the most confusing aspects of getting a mortgage. ‘If you talk to three different lenders about what the interest rate will be and what the loan will cost, you will get three different amounts and three different uses of the word mortgage points,’ Duncan says. ‘This is why it is so important to talk to more than one lender and to tell each lender what the others are offering.’ When you are mortgage-hunting, let the lender know what interest rates the other lenders are charging, the mortgage points in terms of prepaid interest, and how much the mortgage points or flat-rate charges to process the loan will cost. ‘The number one consumer protection is shopping,’ Duncan says. ‘There are no foolproof methods, but comparison shopping is the best one going.’

He explains that another reason to know which mortgage points are prepaid interest and which are associated loan costs is because prepaid interest is tax-deductible, while loan-associated costs are not. Since mortgage interest payments are the single largest income tax deductions the average homeowner will ever have, it is important to know what is deductible. Deduct too many mortgage points, and the IRS could be calling on you. Deduct too few, and you are throwing away money. ‘From the consumer’s perspective,’ Duncan says, ‘when you buy a house, the interest-related mortgage points are a deduction in the year the mortgage points are paid. On a refinance, however, the mortgage points you pay are deductible over the expected life of the loan, not all in one year.’ So if you take out a 30-year, $100,000 loan to purchase and pay one prepaid interest mortgage point, you can deduct the full $1,000 that year. If you take out a 30-year, $100,000 refinance loan for one prepaid-interest mortgage point, however, you would be able to deduct only 1/30th of that $1,000 on your taxes every year — $33.33.

Duncan adds that some of the mortgage points associated with getting a loan also may be deducted from your taxes, depending upon the exact nature of the expense, your own personal circumstances and where you live. Check with your Pflugerville notary. Buying a home is a major and complex financial arrangement, and you should make sure you understand all the details of the process — each and every mortgage point. The last thing you want to do when you make the largest single investment of your life is miss the mortgage point(s) — any of them.





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