Save thousands with these mortgage tips and tricks. These 7 tips will put you on track to win! Buying a home and getting a mortgage can be very intimidating and over whelming. This is a process that we do not go through every day. For most it may only be two or three times during their lifetime.
Follow these simple steps and you will keep your hard earned money away from the lenders. There are many different mortgage loan products available.
We will outline them for you so you have the required knowledge to choose the best situation for you.
Tip 1: Know what you can afford
This mortgage tip and trick is perhaps the most important! If you get into a situation where your house payment is larger than it should be you will find yourself in financial trouble. How much is too much?
The smart answer is no more than 25% of your take home pay, it can be a little bit higher but not much more! This will include the principle and interest as well as the property taxes and homeowners insurance.
Having a good budget is essential. You want to be able to eat and pay the other expenses such as electric, gas, water, sewer and other related expenses.
As you transition into a home you want to make certain that you have those expenses covered. Owning a home is not just about paying the mortgage there are other related expenses.
If you need help building a budget see our post. 10 Easy Steps to Creating a Budget that will put you on the path to Financial Independence
Tip 2: Down payment
The trick here is put down as much as you can. The best is to put down 100%. Yes you read that right 100%. Pay cash!
But no one pays cash well the fact is some folks do. If you cannot pay cash you will want to plan carefully. The bigger your down payment the lower your monthly mortgage payment.
A minimum goal for a down payment is 20%, this is a magic percent! Anything less will cost you higher payments. You will have to pay for PMI, (Private Mortgage Insurance). This is an added cost and can be expensive, it can add as much as $100 or more to your monthly payment.
This insurance is not for you, it is for the mortgage company in case you default on the mortgage and the house is sold in foreclosure for less than the mortgage amount. They could be made whole.
Tip 3: Reserve, emergency fund
What happens if something goes wrong? A plumbing issue, the heat don’t work or the air conditioner decides to take a holiday.
What are you going to do? How will you pay for it? Did you prepare for that rainy day?
An emergency fund comes in handy! You need to make sure you have at least 3 months of expenses set aside. Read about my experience with an emergency fund.
What about a reserve? Do you have one? How will you pay closing costs? Points, appraisal fees, inspections, surveys, title insurance, attorney fees and of course terminate inspection. These costs add up quickly and many will be required by your lender.
It will be less stressful if you prepare ahead for these expenses. Here is a little tip and trick for you, ask the seller to pay for some of these.
Tip 4: Review your credit report
This tip could save you in that the better your credit the better your rate. If you have poor credit you will pay a higher rate and there is a possibility that you may not even qualify for a loan.
As you begin this journey a great place to start will be with your credit report. Have you reviewed it recently? There are three credit bureaus: Experian, TransUnion and Equifax. They have been compiling information about you and your spending habits. They know more about you than you.
If you have not reviewed yours you can get free access here.
It is strongly recommended that you access your report and review it for accuracy. Is the information in the report true? If you find inaccurate information you will need to file a complaint requesting an explanation or correction. Do not assume it is correct.
There are a number of things you can do to increase your credit score. It will be worth making the necesary changes to improve your score because it will get you a lower rate.
Tip 5: Eliminate all other debt
This mortgage tip and trick could be the difference between owning your own home and continuing to rent. Find out what may be better owning or renting access the pros and cons here.
When you apply for a mortgage the lender will take into consideration all of your non mortgage debt. If you have other outstanding debt they will reduce the amount they will lend you based upon your ability to make payments on all your debt including the new mortgage.
Keep in mind they want to make sure they are going to get paid. They will review not only your outstanding debt and the monthly payment but they will also look at your credit that is available to you. If you were to max out those lines what would your monthly payments be and how will that effect your ability to pay the mortgage.
They more than likely will require you to close some if they believe you potential to borrow is more than you can afford to repay.
Limiting your outstanding debt will work in your favor. Say good bye to the car loan, the credit cards and personal loans. It is recommended that you be totally debt free. Yes student loans too.
Reduce the amounts you have available as it will have a negative impact on your mortgage borrowing.
Tip 6: Types of mortgages
The different types of available mortgages are limitless. You can get a conventional fixed rate, variable rate, FHA, VA, 30 year, 15 year, 10 year. The list goes on.
I once had a 40 year mortgage. I also had a number of adjustable rate mortgages.
The big question for you to ask is how quick you want to own your home or do you want to continue to pay the mortgage company thousands in interest.
The conventional wisdom is a 15 year fixed rate. This will allow you to own your home in 15 years and save you a bundle in interest cost over a 30 year mortgage.
Here is a mortgage calculator for you to calculate your mortgage payment. Other types of mortgages are also discussed.
Tip 7: Pick a good location and use a good realtor
You have done all your homework and have laid out your plan. Your finances are in tip top shape. A pre-approval is in hand. Ready to go. What next?
Locate a highly regarded seasoned real estate agent to work with. Find one you trust and can help guide you and assist you in locating the home you have worked so hard for.
In addition you will want your new home in an area with a good school district. This is important even if you do not have any kids. Think location. What does the neighborhood look like? Is it appealing, does it feel like home!
I hope that these Mortgage tips and tricks have been helpful in putting you on the path to achieving your goal of home ownership. Enjoy your new home for many years.
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