What do I need to know when looking for a mortgage?

What should I consider when choosing a mortgage?

Buying a home is a big decision—the biggest most people make in a lifetime. So, being informed and understanding your unique financial situation is critical.

Choosing a mortgage requires taking a holistic look at your life events, including current and future goals. It requires analyzing how a mortgage can affect paying off car loans, student loans, high-interest credit card debt and more. It’s evaluating long-term benefits and understanding the results of each option. At Mortgage Coach, we call it a Total Cost Analysis.

Three things every homebuyer needs to know:

1. Your Mortgage Options
Compare different types of loans based on your life events and future plans. How long do you plan on owning the home? Can you buy before you sell? How much money do you have allocated for closing costs? There’s a lot more to consider than rates.

2. Total Cost Over Time
Consider the total cost based on short-term and long-term scenarios. Are you hoping to own a home free and clear? Are you trying to accumulate as much cash wealth as possible right now? How long will you be in the home? Is the property a vehicle for investment? These types of considerations will help determine your strategy.

3. Investment Strategies
Map out different strategies to determine the best option. For example, consider prepaying your mortgage to shorten the loan length. Or, use the benefits of a smaller payment to enable investments in accounts that deliver better interest rates.

What fees are APR fees?

The following fees are generally included in the APR:

  • Points- both discount points and origination points. 1 point equals 1% of the loan amount
  • Pre-paid interest- The interest paid from the date the loan closes to the end of the month. If you close on August 10th, you will pay 21 days of pre-paid interest
  • Admin Fee
  • Loan-processing fee
  • Underwriting fee
  • Document-preparation fee
  • Private mortgage-insurance
  • Escrow/Settlement fee

The following fees are sometimes included in the APR:

  • Loan-application fee
  • Credit life insurance (insurance that pays off the mortgage in the event of a borrower’s death)

The following fees are normally not included in the APR:

  • Title or abstract fee
  • Attorney fee
  • Notary fee
  • Document preparation (charged by the closing agent)
  • Home-inspection fees
  • Recording fee
  • Transfer taxes
  • Credit report
  • Appraisal fee

What if I don’t have enough for a 20% down payment?

Mortgage Insurance (MI)

If you don’t have enough for a 20% down payment, typically you will have to pay mortgage insurance (MI). This is insurance for the lenders, in case you default on your loan.

FHA Loans

Paying MI can be expensive! Luckily, the federal government offers loan options through the Federal Housing Administration (FHA) and they pay MI for you. They have different types of loans to match your financial situation. Learn more from your loan officer.

Other options?

Some lenders will offer a no MI option without a 20% down. Ask your loan officer about what they offer that best fits your financial situation.

What other fees and costs should I be aware of?

Closing Costs

In addition to the down payment, you will have to pay closing costs, and fees associated with your home purchase. You pay these when the title of the property is transferred to you. This is usually about 2 to 5 percent of the purchase price of your home. You can negotiate who pays these costs, whether you or the seller.

Hazards & Homeowners Insurance

Hazard insurance covers structural damage caused by natural disasters. Homeowners insurance protects you against theft and damage to your home and belongings sustained in more mundane ways. Homeowners insurance often includes hazard insurance. Check your insurance options to make sure you are covered properly.

Property Tax

Property taxes are taxes paid to the local government on property you own. Once you buy a house, you will pay property taxes. These vary by city and is based on the value of your new home.

Home Owners Association (HOA)

Some neighborhoods have a homeowners association, which is a governing body within that community. If your new home is such a neighborhood, you have to pay monthly HOA fees. This fee is different depending on the neighborhood.

Work with a pro who can guide you through smart financial decisions.

When you work with a lender who uses a Total Cost Analysis, you’ll be able to compare specific scenarios of the overall cost of the loan and discover unique strategies you likely wouldn’t have considered. If you are transparent about your financial situation and goals, your lender will guide you with an easy-to-understand visual presentation.

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