Thursday, October 1, 2009

Mortgage and Refinancing Tips

Taking on a new mortgage or refinancing an existing one can be a big decision with huge financial impacts. No matter what you do, it’s important to be armed with all the information possible so that you’re able to make the best decision. Here are some things to consider when applying for a mortgage or refinancing an existing mortgage.
  • Loan size: Consider how much you can really afford after all your expenses. Be realistic – the most common mistake is to underestimate expenses or how much you need to save. In addition, when taking out a jumbo loan, make sure you’ve borrow enough to cover unexpected short-term expenses, such as any house repairs.
  • Loan term: There are loans of varying length, from 1 year to 40 years. The general rule is that you will pay more in interest costs for longer terms loans such as 30-year fixed mortgages. If you can afford a 15-year fixed rate loan, you’ll pay off the mortgage in half the time and save thousands in interest costs. If adjustable rate mortgage rates are low or you’re planning to move after a few years, think about a 5-year or 7-year adjustable rate mortgage (ARM). You can save money in the short term, and refinance the mortgage after a few years if your situation changes.
  • Fixed rate mortgage vs. adjustable rate mortgage (ARM): Think about your level of income and risk profile when considering which type of loan is best for you. Is this a good time to lock in a low, long-term fixed rate loan? Will you be moving in a few years? Can you afford a 30-year fixed rate loan? Are you on a fixed income? Does a 3 year, 5 year, or 7 year ARM make sense for your situation? Read the article on fixed rate vs. adjustable rate mortgages to learn more.
  • Mortgage rate: What is the current rate, and how long is it guaranteed for? When will the rate readjust, and how much higher can it get? Are long term rates likely to move up or down? It’s also important to assess your risk tolerance and what you can afford to pay.
  • Mortgage broker: Make sure you’re comfortable with the mortgage broker you’re working with. It’s important he / she is experienced in home mortgages and lending. If not, find someone else – you’re spending too much money to get anything less than superb service.
  • Credit score: What’s your credit score? A higher credit score will mean better rates. Check out ways to improve and raise your credit score.
  • Lender / Underwriter: Make sure you know who the ultimate lender is. Often, the company you work with is not the company behind the loan. For example, you may work with a broker, but your loan may actually come from Bank of America, Countrywide Financial, Wells Fargo, or Citigroup. It’s important to know who will is actually underwriting your loan.
  • Closing costs: All lenders charge closing costs, which consists of document fees, notary fees, appraisal fees, loan origination fees, and many more. Make sure you understand all your closing costs, and ask questions for anything that doesn’t make sense. Don’t pay what you don’t know, and make sure all costs are clearly defined.
  • Shop around and negotiate: When looking to refinance your house or apply for a new mortgage, shop around. All lenders have different rates and incentives. It’s important to talk with several lenders. When you apply for a new mortgage, you can often negotiate lower closing costs and get certain items free. If possible, use applications which get multiple quotes from multiple lenders, making the process even easier.
  • Mortgage application fees: A mortgage application should always be free. If a lender is not offering you a free mortgage application, walk away immediately. It should not cost anything to apply for a mortgage.

Remember, a mortgage and refinance are always negotiable. If you have equity in your home and a good credit score, a tough mortgage market like this is great for attractive clients like you. Don’t be afraid to ask for a better rate or ask for fees to be waived. Negotiate even if you don’t have equity in your home or if your credit score isn’t that great. Before you apply for a mortgage or refinance, it’s important to shop around with multiple lenders as you’ll discover that each lender offers different rates, incentives, and kickbacks. At the end of the day, every bit you can save in closing costs, appraisal costs, reduced payment for points, or a lower rate means money directly in your pocket.

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