A mortgage is probably the biggest loan you’ll be taking in your lifetime. Every little misstep will have repurcussions on your finances. Here’s a simple checklist to help you make an informed decision.
Know your monthly payment
A mortgage loan is a numbers game. There are various fees, taxes and, confusing terms masked to sound more important than necessary! Feed the numbers into a mortgage calculator, to find out what your actual monthly payment will be. Even if you don’t have all the numbers, this will give you an approximation as to what to expect.
Verify that this is as close to the GFE as possible.
Know your interest rate *and* APR
The interest rate tells you only one side of the story! Know your APR. The APR gives you the overall rate you are paying for your loan. Stay away from loans that have a large interest rate-APR spread.
Think carefully before paying points
This is where a mortgage calculator comes in very handy! Points are prepaid interest for the entire term of the loan. An average family stays for about 7 years in a home. Considering the above statistic, points are usually a bad deal.
Don’t get too fixated on the rate you are getting by paying points. If you must, use the money to pay down your principal instead of paying points!
Goes without saying! Compare GFEs to get an accurate picture. You need not go with what the lender recommends to get a title. Titles incur a significant cost. Shop around.
Know your credit score
The rate you get is not what’s advertised. This depends on your credit score. Know you credit score before applying for a mortgage. Here’s one way you can check your credit score for free!
Check your credit history
Before applying for a loan, get a record of your credit history from all three bureaus. This service is free. The link provided is the only official site to get your credit reports from all three bureaus for free and without having to sign up for trial offers or fork over your credit card info.
You shouldn’t have to pay for your credit reports.
Errors could have a significant impact on your score. Correct them before applying for a loan.
Know what a PMI is
If this is your first time buying a home, you may not have heard of PMI. That’s insurance for the lender in case you default. You usually have PMI if you are unable to put in at least 20% down payment. While this may not be feasible for everyone, do consider this when deciding how much to put in as down payment.
The sooner you get rid of PMI, the more money you save.
Sign up for rate changes
Most lenders provide this service for free even before applying for a mortgage. Make sure to sign up for these alerts. You want to lock in a rate as low as possible.
Know your rate lock-in period
Usually a mortgage closes in 30 to 45 days. But sometimes it could take longer. If the lender has a very short rate lock-in period, you might have to re-lockin the rate if the closing doesn’t happen within the lockin time.
Each enquiry into your credit report is a hard pull
Remember that each inquiry into your credit report is a hard pull when it comes to mortgages, and hard pulls will reduce your credit score. But the good news is, if the pulls are with a short period of time (usually within a month), multiple pulls are treated as a single pull. Shop around for lenders at the same time!
And finally, don’t get suckered into a loan that has prepayment penalties. Some of ING Direct’s mortgages have this! Always ask!
Did you know: The word ‘mortgage‘ comes from the french words ‘mort‘ meaning death and ‘gage‘ meaning pledge, literally translating to ‘death pledge’
Demystifying Mortgages For The First Time Home Buyer