Buying a home seems more feasible and affordable than it has in recent years. When shopping for a home loan, it’s important to take the right measures to guarantee that the loan meets your needs and your budget. Each June, the American Bankers Association celebrates American Housing Month to highlight the housing or housing loan options that consumers have, and the role of banks in financing many of those options. We join with them to help bring to light some mistakes that everyone makes when shopping for a home loan, and how to avoid them.
1. Not Asking About Hidden Charges or Pricing Adjustments
Banks and lenders will often advertise their low interest rates, but sometimes they are too good to be true. These low rates may come with mortgage points that you will have to pay upfront, or other hidden fees. Save yourself from future debt by breaking down the costs of the loan carefully, including the mortgage points on the loan, before you sign the contracts with your bank or lender.
2. Making a Big Deal Out of Mortgage Points
When you buy a new home, you may not be sure how long you will live in it. Five years? Ten years? The length of time you plan to spend in your home should be considered when it comes to buying mortgage points. One mortgage point is equivalent to 1% of your entire home loan, meaning that if your total home loan is $200,000, you may be asked to pay $2,000 for one point. As mentioned above, this cost to lower your interest rate requires payment upfront. If you’re planning to live in the home for a long time (greater than a decade), this service would be great for you. If you don’t see yourself living in the home for more than ten years, you should reconsider purchasing points.
If you buy a home with a 30-year fixed interest rate mortgage and you move out of the property, you will end up overpaying. Long-term mortgages are more expensive than other options, if not the most expensive, due to the high interest rate and the amount of time you will have to pay on the loan. Level your expectations with what you need now and in the future. If you can pay off the loan in a decade, then get a fixed rate mortgage with a low interest rate. The right home loan for you will give you the long-term results you are looking for to stay on track with your finances.
4. Shopping for Fees and Rates at the Same Time
When shopping for a mortgage, you’ll want to strategize on how you are going to research different mortgage options. As tempting as it sounds, never search for all the options at the same time. Either shopping by fees or shopping by rates will prove to be more effective for your search. Factors such as your ability to pay for the mortgage, the payment terms, fees, rates, the current market situation, and your specific lifestyle should be taken into consideration for determining the mortgage structure that will fit you best. If you choose to shop by fees, then you should be taking into consideration that you’ll need to pay for the mortgage in a shorter amount of time. If you are shopping by rates, you will want to gain flexibility in how you’ll earn savings off the interest, and how you’ll pay during the life of the loan.
When it comes to buying a home, consumers have several options to choose from, and many of those include financing from a bank or lender. As the American Bankers Association celebrates American Housing Month this June, ensure you’re getting the loan that meets your needs and budget by avoiding the preceding four mortgage mistakes. You can always call on your accountant at Crippen & Co. for guidance on what solutions will be best for your overall financial health.