6 Things You Must Know Before You Buy

“Subtle changes in the way you approach mortgage shopping – or even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.”

Get the Right Information

Whether you’re about to buy your first home or are planning to make a move to your next home, it’s critical that you inform yourself about the factors involved.

Industry research has revealed 6 common mistakes most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

What You Must Know Before Obtaining a Mortgage

• You can and should get preapproved for a mortgage before you go looking for a home - Preapproval is easy and can give you complete peace of mind when shopping for your home. For a small charge (refundable at closing) your local lending institution can provide you with written preapproval with no obligation to you, and it can be done quite easily over the phone, or even online. More than just a verbal approval from your lending institution a written preapproval is as good as money in the bank. It entails a completed credit application, and a letter which guarantees you a mortgage up to the specified level when you find the home you’re looking for.

• Know what monthly dollar amount you feel comfortable committing to – When you discuss mortgage preapproval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a preapproval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that aren’t in your price range.

• You should be thinking about your long term goals and future situation to determine the type of mortgage that will best suit your interests – You should ask yourself a number of questions before you commit to a certain type of mortgage. How long do you think you’ll own this home? What direction are interest rates headed, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay toward your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.

• Make sure you understand what prepayment privileges (or penalties) and payment frequency options are available to you – More frequent payments (for example, weekly or bi-weekly) can literally shave years off your mortgage. Simply by structuring your payments more frequently the amount of interest you’ll be charged over the life of the loan will be significantly lower.

For the same reason authorized prepayment of a certain percentage of your mortgage, or an increase in the amount you pay monthly will have a major impact on the number of years you’ll have to pay (or if you don’t plan to stay in your home for 20 or 30 years, the amount of equity you’ll build until you sell) and could shorten your payment term considerably.

These two payment options can cut years off your mortgage, save thousands in interest, and build equity faster. However, not every mortgage has these prepayment privileges built in. Some mortgages come with prepayment penalties, so make sure you ask the proper questions.

• Ask if your mortgage is both portable and/or assumable – An assumable mortgage is one that the buyer for your home can take over when you move to your next home after they qualify for the loan. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home, and again, save you any discharge penalties.

• You should seriously consider dealing with a Mortgage Expert – Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example, they can make the process faster thereby avoiding costly delays. Typically there is no obligation to inquire.

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