Now that you have decided to buy your dream home, it’s time to consider how you will pay for it. You could always just write a check for the total purchase price and be done with it…
While paying cash may be a possibility for some, the reality for most is that buying a home will require a home loan or mortgage.
Before we begin, it is important to note that mortgages can be extremely complicated, and selecting the wrong loan type could seriously jeopardize your home and financial future.
Without further delay here are a few plays to help you choose the right mortgage like a pro:
1. Ask if others have played the mortgage game before.
Find a good friend or close relative who may have recently gotten a home loan if they would recommend their mortgage lender – and how there experience went.
Do you know a realtor or someone else who deals with mortgage lenders regularly (a financial adviser, attorney, etc.) who could help you create a list of local lenders?
It almost goes without saying that even with a recommendation, you should search online and research the mortgage lenders extensively. But be sure to push past the fancy advertising campaigns and always investigate the fine print, loan fees, lock-in periods, and every mortgage qualification requirement.
2. Think long term investment vs. short term payment amounts.
The age old adage used to place an emphasis on paying a mortgage as soon as financially possible. These days however, the average debt that a home buyer accumulates due to credit cards, school loans, etc. means it might be better to opt for a 30-year mortgage instead of the traditional 15-year. In this regard, you will have a lower overall monthly mortgage payment, and still have the option of paying additional towards the loan principal when finances are good.
3. Take an extra point off the top to reduce your overall interest payments instead.
When selecting the right mortgage type for your family, you may find that you have the option of paying additional points at closing in exchange for a lower interest rate.
Do it. If you plan to stay in the home for a considerable amount of time (7 years or more) and given the current real estate market, you should seriously consider buying down your interest rate. Paying a little extra in closing costs now will save you a lot of interest payments down the road.
For example: a one percent interest rate reduction may cost you up to $5,000 today, but save you $35,000 over the life of the mortgage loan. Essentially, that equates to hard earned money in your pocket to save for early retirement or even invest elsewhere.
4. Enlist the help of a mortgage broker – before you actually choose your lender.
If researching and interviewing mortgage lenders sounds a bit overwhelming to you, consider hiring a mortgage loan broker to help you.
A mortgage broker is basically an independent contractor who pairs purchasers with a variety of different home lenders by scouring available loans and finding the one that best fits your financial needs.
As with a realtor, be sure to research your mortgage broker first, an ALWAYS get everything in writing. Do these things and you will feel like a pro when it comes time for you to choose the right mortgage loan for your home purchase.