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Top 10 Financing Tips
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Tip 1.
Don’t Stretch Your Loan Qualification Limits To Buy A Home Beyond Your Budget. A home should be a source of satisfaction and an investment not a financial albatross, especially for first-time buyers. Borrowing heavily from family members, selling assets, and living poor just to own a bigger or better home, makes for larger mortgage payments and risks difficulties in the future.
Tip 2.
Always Shop For Competitive Rates, Points, And Fees. Get at
least three bids. The most competitive lender one week may not be
next week so get (or reconfirm) quotes the same week you are ready
to make the commitment.
Tip 3.
Get An Immediate Written Confirmation Of Your Locked In Interest
Rate And Interest Rate Terms (i.e. if you are locking the rate,
can you relock if rates drop, etc.), points, and fees, you might
find some discrepancies with the figures used on the final loan
documents.
Tip 4.
Don’t Agree To Prepayment Penalties. You may want to refinance
or partially prepay part of the mortgage. If there is no mention of
prepayment penalties, make sure you have an addendum attached to the
mortgage specifying that no fees will be imposed.
Tip 5.
Understanding All The Conditions Of Your Loan: You or a
professional that you trust should thoroughly scrutinize each
document. Ask questions if you aren’t sure what something means.
Tip 6.
Pick The Right Kind Of Loan. Rates are higher on 30 year loans
than on comparable 15 year loans. That's because there is a greater
risk that rates will go up the longer the lender commits to a fixed
rate. Lenders hate holding loans at below market rates. While there
is an advantage to the predictability of fixed rates, if you expect
to be transferred in 5 years, you’ll be paying more than you need
for a 30 year fixed rate loan. If you want both the security of
predictable payments and the lowest monthly payment consider
"hybrid" loans - those with a fixed rate for the first
five or seven years of their 30 year duration. If you are going to
be there for a shorter period, or have confidence that rates will be
dropping further, consider an adjustable rate mortgage.
Tip 7.
If You Are Buying Rather Than Refinancing, Consider Getting A
Pre-approved Mortgage Or Contingent Loan Approval Letter. The
former is a binding commitment for a loan up to a certain amount. It
can substantially strengthen your negotiating position with the
seller, but it puts pressure on you to close a deal before the loan
commitment expires. A contingent approval is a letter from a lender
that states the largest loan you would qualify for, subject to
confirmation of the financial information you’ve provided and
formal approval. It will also give you additional negotiating
leverage without binding you to the lender (or vice versa).
Sometimes owner financing can work to both parties advantage. Ask
the seller if it’s a possibility. If so explore further to see if
there might be mutually agreeable terms before making an offer.
Tip 8.
Save Everything. Lenders require and provide numerous documents.
Some get misplaced, usually at the most critical time. Keep copies
of everything you send the lender and everything the lender sends
you.
Tip 9.
Take Advantage Of The Deduction. The mortgage interest deduction
is one of the few remaining tax deductible interest payments, and
it’s also the cheapest form of long term financing. Consider
financing/refinancing as an alternative source of funds for home
improvements or other constructive long term investments like
education. Don’t get in over your head, and never use it to
finance your summer vacation or other short term pleasures.
Tip 10.
Study! A lot of money is at stake You can’t learn too much,
and you won’t have time to learn what you need, interview and
select a lender in the five days allowed most buyers to apply for a
loan. Read the real estate section of your local paper and books on
the subject.
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