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Education and Preapproval, The First Step

by The Jana Caudill Team

Whether you’re a first time home buyer or you’ve been through the home buying process many times before, do yourself a favor.  Make speaking to a mortgage lender one of your first priorities when beginning your new house hunt.

Unless you have just come into a windfall of cash you’re probably like the rest of us and need to get a mortgage in order to move into that dream house.  There are many reasons for speaking to a mortgage lender or mortgage broker up front.  A professional who deals everyday in these types of loans will know what the current rates are.  They will take into consideration your credit scores, monthly income, available savings for a down payment, and best available interest rate based on all your information to come up with the loan amount you qualify for.

Please understand the primary benefit here: education.  This is a process not to be taken lightly.  The lender’s job is not to put you into the biggest house (and by association the biggest loan) possible.  Their job is to counsel.  Through the interview process they learn about your financial situation and determine your expected ability to repay the loan over the five, fifteen, and most common thirty year term.  The lender can also let you know whether there are some items on your credit reports that are getting in the way of your getting a better interest rate, or simply getting in the way of your qualifying for the loan altogether.

The mortgage market has changed over the last few years, and it has become more difficult to get that perfect loan.  Today you need more money for the down payment than you may have needed in the past, and guidelines for qualification are stricter than ever.  Speak to a mortgage professional you trust.  If you don’t have one, speak to friends, family and neighbors.  Ask who they have used in the past and what the experience was like.  Ask your friendly neighborhood Realtor® for a list of reputable candidates.  The last thing you want to happen is to find your dream home, write and have your offer accepted by the sellers, then discover you can’t get the mortgage to complete the purchase.  Get prequalified first, and house hunt with confidence.

Five Year Increments by David Reed

by

Which is better, a 30-year or a 15-year fixed rate mortgage?  A common and important question which, when answered, affects both the monthly payment and the amount of interest paid on a mortgage loan. While paying less interest over a shorter timeframe seems to be the obvious answer, the difference in monthly payment is surprising to some.

For instance, on a $300,000 note at 6.25 percent over 30 years, the principal and interest payment is $1,847 per month. Whereas on that same loan amount over 15 years at 6 percent, the payment jumps to $2,531! It’s easy to understand why most choose a 30-year loan over a 15-year loan; not only is the payment lower but it takes less income to qualify.

On the other hand, more money goes to interest on a 30-year loan compared to a 15-year loan. Using those same figures, the 30-year note yields $364,920 of interest, most of it in the first 10 years of the loan, while the 15-year loan only requires $155,580. That's less than half the interest that a 30-year loan produces!

So, which is better? Maybe neither.

While few lenders advertise this, there’s a compromise available to you. Loan payment periods can actually be acquired in five year increments. You don’t have to choose between a 30 and a 15-year loan! You can select a 10, 15, 20, 25 or 30 year mortgage. Some lenders even offer 40-year loans. Now it’s possible to both keep monthly payments manageable and save on interest charges.

Here are the payments for these additional amortization periods on $300,000:
Term(yr) Rate  Payment
10 6.00% $3,330
20  6.25% $2,132
25 6.25% $1,979

                                            

Since these five year increments aren’t advertised you’ll typically have to ask your loan officer for a quote. Don’t be shy, you’ll find out that you just might be able to have the best of both worlds: lower payments with reduced interest charges!

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