As a change of pace from my usual talk of bullshit and nothing that really matters, I'd like to talk to you today about something that will help you. You may not need this information now, but there's a few good tips here you should hang on to.
Mistake 1: Getting a mortgage at all if you don't plan to stay put.
You can no longer assume you'll be able to sell your house at a profit in two or three years. Today, you don't want to buy unless you plan to stay in the house for at least five years and preferably 10.
Consider: The cost to buy a home is more than the price of the house. When you buy, you should expect to pay closing costs equal to about 5% of the value of the house; when you sell, you'll likely pay 5% to your real estate agent. And never mind all the money you'll put into maintaining the house.
So if you can't sell the home for at least 10% more than you paid for it, you'll be losing money. In today's markets, that kind of gain will take years.
Mistake 2: Not checking -- and fixing -- your credit.
A single late payment made during the past year can lower your credit score by 100 points or more -- and that could translate into an additional one-half percentage point on your mortgage rates, plus additional fees at closing.
So, check your credit report for accuracy and get any mistakes taken care of before you apply for a loan. Each report shows how to correct mistakes or submit an explanation for legitimate black marks that appear on the report.
Mistake 3: Getting anything other than a fixed-rate mortgage.
After years of adjustable-rate, interest-only, pay-what-you-want loans, the fixed-rate mortgage is cool again.
It's now cheaper to get a 30-year, fixed-rate loan than it is to get an ARM, and you'll be secure in knowing what your payment will be as long as you have the loan. There's no reason to consider anything else.
Mistake 4: Passing up an FHA loan.
Getting the Federal Housing Administration to guarantee your loan can help any homebuyer who has little cash for a down payment, a low credit score or too much debt.
FHA loans can also help current homeowners struggling to keep up with their payments refinance into a more affordable mortgage. Rules have been changed to make refinancing easier, and the amount of money you can borrow with an FHA loan has been significantly increased.
Mistake 5: Borrowing too much money.
This isn't as easy as it used to be, granted. Lenders aren't throwing money around like they were five years go.
But it's still easy to underestimate how much your house is going to cost -- to lowball taxes, insurance or condo or association fees, or the cost of utilities and maintenance.
This calculator can help you sort through all the costs and decide how much home you can afford. Then set your price range and stick to it.
Mistake 6: Getting just one quote.
Shop around and get at least three to five mortgage estimates. You'll be shocked at the differences among interest rates and fees.
Landing the best possible deal can reduce your payments by hundreds of dollars a month and avoid hundreds or even thousands of dollars of unnecessary fees.
This awesome step-by-step advice on how to find the best home loan will walk you through the entire process.
Mistake 7. Failing to buy down your interest rate.
Paying a point on your mortgage is like prepaying part of the interest on your loan -- you pay 1% of the loan amount up front, and in return, your interest rate is lowered.
In the past, paying one point on a loan might get about one-quarter of a percentage point knocked off your rate. Today, it might get one-half point, or even more.
As an example, let's say you want to borrow $300,000. Pay $3,000 up front, and your interest rate may be lowered from 5.25% to 4.25%, for a savings of about $184 a month. You'll recoup your initial cost in 16 months. Even if the rate only falls to 4.75%, it will save you about $90 per month, a savings you'll recoup in just less than three years.
Paying points doesn't make financial sense for everyone, but the return on investment has never been better.
And there you have it, folks. These simple notices should help you avoid these costly mistakes!