For most Americans, buying a home in pursuit of the American Dream of homeownership is the largest expense of a lifetime. Most single family detached homes or condominiums have price tags ranging in the tens of thousands to hundreds of thousands of dollars range and require a mortgage in order to purchase. A mortgage is a home loan issued from a lender and part of the legal obligation requires a borrower to pay off the debt, and pay interest. While over time, that prospect can add thousands of dollars onto the price tag of a home; interest is not the only expense to include in a home buying budget.
Currently mortgage rates are historically low, meaning that interested homebuyers can literally shave thousands of dollars off of the interest paid on a home loan during the financial obligation. That fact combined with a surplus of housing inventory, has made now the best buyer's market in years. Despite that winning combination, novice mortgage shoppers need to be aware of the additional charges they may be responsible for as part of the home buying equation.
Mortgage Points
Mortgage rate origination tool, MortgageMarvel.com defines points as "Fees that are collected by the lender in exchange for a lower interest rate. Commonly called discount points. Each point is equal to 1% of the loan amount." Simply put, mortgage seekers may be charged a premium (in the form of a point) to lower the mortgage rate they are being offered by a lender.
Not all mortgages require point payments in order to get a great rate, but for those that do, consumers need to crunch the numbers to determine if that upfront expense will be worth it in the long run. Factors crucial to the mortgage calculations include comparing the total home loan amount, annual interest rate and total loan terms with a loan amount of the same amount, annual interest rate, number of points paid and the upfront cost of said points. Comparing those numbers side-by-side can indicated how the additional points paid now, can end up saving thousands of dollars in the long run.
Closing Costs
Closing costs are additional charges generated by the escrow, mortgage and closing process, and the total amount due will be based on fees including origination, escrow, underwriting and processing. Legally, lenders must provide homebuyers with a Good Faith Estimate (GFE) and the total closing costs can only exceed the written amount by ten percent.
Until recently, there were no rules mandating lenders presenting accurate closing cost estimates, and thanks to that documentation, lenders are now padding the estimates in order to minimize their chance of loss. Consumers not pleased with a GFE, simply need to try the act of negotiation to see if closing costs can be reduced.
Private Mortgage Insurance
Many lenders require mortgage holders to secure private mortgage insurance (PMI) as a way to prevent potential loss caused by mortgage default. The amount of coverage required is based on loan to value ratio, type of loan, and typically, consumers that put down less than a 20 percent down payment are required to get the coverage.
Those looking to dodge the financial bullet associated with this homeowner insurance need can usually dodge the expense by making a larger down payment than required. Additionally, as a home buyer builds greater equity into their home and end up owning more than the bank, this expense will no longer be required.
Even though there are additional expenses associated with buying a home, the time has never been better to get into the groove. For those ready to roll up their sleeves and get into the action, Mortgage Marvel can make the task of locating competitive mortgage rates a breeze.
