Steps to Take Before You Begin House Hunting

You have made the big decision - its time to buy! However, unless you’re going to be paying cash for that house, condo or co-op, you'll need to take out a mortgage to cover the difference between your down payment and the cost of the property. But before you go house hunting, you should take some steps that can help make the process, including obtaining a mortgage at the best possible interest rate, go as smoothly as possible.

Keep those monthly payments down

Getting the best interest rate on your mortgage is really important because even a small difference in your interest rate can make a big difference in your monthly payments, especially since you’re going to be making them for many years to come. 

Great credit can help you score a great mortgage rate

The more creditworthy you are, the greater the likelihood that you will be offered a mortgage with the lowest interest rate, especially compared to someone whose credit rating may indicate, for example, delinquencies paying bills.

Credit rating agencies

To judge your creditworthiness, financial institutions review your rating from the three major credit ratings agencies, Equifax, Experian, and TransUnion.

Your credit rating is expressed numerically. The higher the number the better your credit. Most lenders will red flag applicants with credit scores below 700, so it’s important to be above this number when you’re applying for a mortgage. Even with a score above that you might not get the best possible interest rate, which lenders give only to those whom they judge to be the most like to make payments on time each and every month, so anything you can do to raise it is helpful.

Start by requesting your credit report

First, make sure your credit rating is as accurate as possible by requesting a copy of your report from each credit rating agency. Federal law mandates your right to a free credit report annually from each credit reporting agency, so you might request it, even if you’re if not applying for a mortgage in the immediate future. Then review each of these reports and if, necessary, make any corrections.

Other credit raising steps

Applying for new credits cards or having multiple inquiries made about your credit may affect your report, so try to keep these to a minimum. 

Also, large open balances on any of your credit cards may cause a loan officer to question your application, so, if possible, payoff any open balances to show that you’re up to date on all your bills.

BestCashCow.com for the best mortgage rates

Once you know your credit is in order, the best way to compare mortgage rates is to check the offerings on BestCashCow.com. That way you can easly compare interest rates from a variety of lenders, in specific zip codes. Then you can instantly find your projected monthly payment, depending on the size of the mortgage loan you’re applying for and even see the difference in payments between, for example, 15 and 30 year mortgages and fixed and adjustable rate mortgages.

Prequalification makes house hunting easier

After you’ve identified a lender, the next step is to get preapproved for a mortgage. While each lender has their own rules, in general, once you’ve been preapproved for a mortgage, which requires you to present all your documentation to the loan officer, you can go house hunting, confident in knowing how much you can borrow and what your monthly payments will be.

However, make sure you’re preapproved, not prequalified for a mortgage, since preapproval does not always require you to submit financial documentation. It’s possible that even if you’re preapproved, once you submit all the paperwork necessary to get a mortgage, you might not get the mortgage you thought you were approved for.

The next step

Now, with your preapproval letter in hand, its time to take the next step – finding that house of your dreams and financing it with best possible mortgage rate.

Should You Prepay Your Mortgage If You Have Ample Resources?

Paying off your mortgage as early as possible may offer peace of mind, but is it always the best financial move?

You might think that paying off your mortgage early is always the best decision that you can make. But are there times when it might be financially feasible to hold back on paying off your mortgage earlier than scheduled.

For one thing, it is important to consider the difference between good debt and bad debt. If you are going to apply for a loan, the amount of bad debt that you have is going to negatively affect your chances of getting that loan. Credit cards and other credit accounts are considered bad loans so the more credit debt you have, the bigger risk you are to lenders. Some of the reasons why credit card debt is considered bad debt include the following:

  • Depreciation – You probably don’t own anything that you paid for with a credit card that has actually increased in value. Nearly everything purchased with a credit card depreciates over time.
  • High Interest Rates – Another reason credit cards are considered bad debt is because of the high interest rates charged by the companies. In some cases, you could be charged a 20 percent interest rate depending on your payment history and credit score.
  • Not Tax Deductible – Credit card debt, unlike mortgage debt, is not tax deductible.

On the other hand, mortgage debt is considered good debt for the following reasons:

  • Investment – When you have a mortgage, you are investing in a product that appreciates in value – your home. Although home prices have been on the decline, over a 20 or 30 year period, they almost always go up in value.
  • Tax Deductible – If you have a mortgage loan balance, you can deduct it on your taxes. This means your taxable income is lower which can save the amount that you owe each year or increase the amount of your return.
  • Achieving Long-Term Goals – There are circumstances in which having a mortgage debt can help you achieve long-term financial goals. Instead of paying off your loan balance in one lump sum, you could invest that money in a 401(k) or other tax-deferred account with a higher interest rate than you are paying on your mortgage. For instance, let’s say you have a fixed rate mortgage at 4 percent and you have $100,000 to pay off over a 30 year term. Instead of simply paying off your mortgage right away, you can invest that $100,000 in an account that has a 7 percent return. At the end of the 30 year term, you’d have more than $760,000 from your initial investment. If you paid off your mortgage early and put those payments into the same type of account, you’d only have about $580,000 at the end of the 30 years.

Check out the best mortgage rates where you live.

So is it always best to pay off your mortgage early? Sometimes it’s simply an emotional issue. You might be willing to give up some money just to have the peace of mind of owning your home outright. But if you’d prefer to earn more over the term of your mortgage loan, it may be worth the time to crunch some numbers and see if how far you’d actually come out ahead.

Is Designing Your Own Mortgage an Attractive Idea?

Have you ever heard about designing your own mortgage terms? Some lenders are moving toward this idea to accommodate this growing trend among home buyers and refinancers.

Have you ever wanted to have a mortgage that didn't fit the standard 15 or 30 year terms that seem to be the only options available to you? While it’s always possible to sign up for a 15 or 30 year mortgage and prepay it sooner on your own terms, few borrowers ever follow through with this idea and they often spread out their payments to last throughout the agreed terms.

But some lenders are offering more than these two standard options to accommodate the growing desire for designing your own mortgage. Quicken Loans has pioneered the idea by creating a product that is based on that idea. The YOURgage allows borrowers to choose repayment options that range from 8 to 30 years. As a result, you can plan your mortgage repayments to end at a certain time of your life.

Did you ever think about getting your mortgage paid off during the same year that your kids go off to college? That way you can apply your money from your mortgage payments to college tuition. Or you can arrange for your mortgage term to end along with some other life event.

According to recent numbers, more than 14 percent of homeowners that refinanced their homes in June of this year chose a mortgage term that was something other than the standard 15 or 30 year fixed rate. That’s more than a 100 percent increase compared to the same time period last year. Many of the refinancers in that 14 percent demographic chose 20-year fixed rate mortgage loans, which is the third most popular term.

Before you decide if you should design your own mortgage, consider the following:

  • Your Interest Rate – When designing your mortgage loan, you may not be saving any money by refinancing. For instance, if you currently have a 15 year fixed rate loan and you want to change to a 12 year fixed rate loan, your interest rate is likely to stay the same. This will cost you money with closing costs and other fees so you’re almost better off financially to continue paying on your 15 year loan and just paying extra each month to pay it off earlier.
  • The Economy – By keeping your longer term mortgage, you are giving yourself flexibility in case a financial emergency arises. The longer mortgage term means you’ll be paying more in the long run, but you also have more money to put into your pocket each month because the payments are lower.
  • Making Sense – Are you the type of person that simply isn’t disciplined enough to pay extra on your mortgage payments each month unless you’re forced to? If so and you want your mortgage paid off by a certain time in your life, designing your own mortgage may be the ideal way to make that happen.

Does this sound like a good idea to you? If you could design your own mortgage, what events coming up in your life would you start planning for today?

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