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Common Confusions About Mortgages and Home Loans

by Roy Yerkes about a year ago in personal finance
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To help you compare loan offers, you need to keep a few tips in mind.

Making Comparisons

To help you compare loan offers, you need to keep a few tips in mind. Mortgages can be obtained from multiple lenders but it is always a safe option to check the ratings and trust the top names like Star Home Loans. Savings increase as you shop more. As per some recent estimates, comparing five lenders can save a borrower more than $400 in interest. Make sure to apply with different lending institutions, such as banks and credit unions as well as online lenders. Use the Loan Estimates to compare closing costs. A Loan Estimate is provided by the credible lenders like Star Home Loans with information about the loan's terms and costs. Comparing mortgage offers is easier with some sort of online loan estimate. Compare loans within a set period of time.To shop around, you're encouraged to contact the major credit bureaus or some top lenders like Star Home Loans. There is a 14- to 45-day window in which you can apply for as many mortgages as you want without affecting your credit scores.

Mortgage Points; The Pros and Cons

Mortgage borrowers pay discount points to lower their interest rates. The mortgage rate is typically reduced by 0.25% for each point, which is 1% of the loan amount. In some situations, a fee of $2,000 can be paid to reduce the interest rate to 4.25% on a loan at 4.5%. For a few dollars each month, you typically spend thousands of dollars up front when you buy discount points. Monthly savings will take several years to reach a level that exceeds the initial payment. It depends on the loan amount, cost of the points, and interest rate when determining the break-even period. Seven to nine years is often the average. It's better to skip discount points if the loan won't be for that long.

Options for First Time Home Buyers

If you're planning to buy a house, find out if you're eligible for any special programs that will make it less expensive. Top lenders like Star Home Loans offer assistance to first-time home buyers and repeat buyers alike. Various programs are available for home buyers in every region. Local governments often provide down payment assistance in conjunction with tax breaks and a favourable interest rate. Programs tailored to different geographic areas and specific career groups, such as educators and first responders, are also available.

The Closing Costs

The lender and third parties charge closing costs. Mortgage rates are not affected by closing costs (unless discount points are paid). You will nonetheless feel the effects on your wallet. You pay closing costs when you finalize the sale of your home, and they usually amount to about 3% of the purchase price. The lender's underwriting and processing fees, title insurance fees, and appraisal costs are included in the closing costs. The Loan Estimate form will tell you which services you may shop for so that closing costs will be reduced. In some cases, you're allowed to shop around for lower fees.

Deciding the Down Payment

Borrowers who are veterans or from rural areas may be eligible for 100% financing and do not need to put money down. Another option for borrowers with low down payments is a mortgage requiring only a down payment of 3.5%. Loans from the government might be available to you (or your spouse) if you are active duty military or a veteran. You may be able to get a government loan if you live in a rural area. These mortgages may require no down payment or a very low interest rate. Usually, down payments are just 3.5% or lower, for loans insured by the federal authorities. Compared to conventional loans, these loans are forgiving of low credit scores. However, you must pay an annual mortgage insurance premium. A conventional loan requiring a 3% down payment may be available for some borrowers. These loans are not insured by the government and can be obtained with low down payments. First-time borrowers or those with low to moderate incomes are normally eligible for these mortgages. If you have 20% equity or more, you can cancel PMI on these loans.

ARM or Fixed Rate?

The interest rate on a mortgage can either be fixed or adjustable. The interest rate on your fixed-rate mortgage remains the same for the entire term of the loan. While insurance, property taxes, and other costs may change during the life of your loan, the part of your payment that goes toward principal and interest remains constant. Variable-rate mortgages can have fluctuating interest rates over time. Most ARMs feature a ten-year introductory period, followed by a five-year, seven-year, or three-year period (or even a one-year period), during which your interest rate is fixed. Rates may change periodically after that. Introduction rates typically are lower for ARMs. It is possible, however, that the interest rate on your ARM can increase once the introductory period has ended, which could cause a substantial increase in your monthly mortgage payments.

personal finance

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Roy Yerkes

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