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Tips for Shopping for a Home Mortgage to Buy or Refinance Existing Loan

By Jim Antonilli
Filed under: Mortgage Refinance         Words in this Post: 572



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Your mortgage payment is a big part of your monthly budget, so it’s worthwhile to invest some time researching the market and comparison-shopping.

  • Contact several lenders. Take the time to get a basic idea what’s available in the mortgage market.
  • If you’re new to this, check with a nonprofit organization that offers courses for home buyers.
  • Find out how your credit report looks. There are several major credit reporting companies; each charges a modest fee for a copy of your report. Check with each company to make sure there is nothing inaccurate in its report. At the same time, find out what your credit score is. This is a number from 300 to 800 calculated by a computer based on a number of details in your credit history. Sometimes this will be included free with the credit report. Often people think they have bad credit and end up with a more expensive loan when they actually could have qualified for a conventional loan. Because credit scores are so widely used today, it’s important to be aware of where you stand and to clean up any inaccuracies. For a conventional loan, you’ll usually need a score of 620 or higher. If your score is lower, the loan terms will be more expensive—called “subprime”.
  • Add everything up, including the interest rate, the points, and fees, to find out the total cost of financing. There is a lot of variability out there, so do some comparison-shopping.
  • Ask whether there are early termination fees, prepayment penalties, or other charges associated with the loan.
  • Most people prefer a fixed-rate loan. The right loan for you will depend on your budget, your aversion to risk, and the length of time you’re likely to own your home. Your lender can explain the benefits of various loan types.

REFINANCING

In years when interest rates are low, refinancing applications can outpace new purchase mortgages. Common motivation for refinancing is to get cash for remodeling; the downside to this, of course, is increased personal debt and the chance that your home might depreciate in value, saving you with a loan worth more than your house.

The old rule was to refinance only  if the interest rate dropped )y at least 2 percentage points. However, recent trends show homeowners refinancing at rates only 1.25 percent lower than the original loan. What’s important is whether refinancing improves your overall financial picture.

Most consumers seeking to refinance focus on rates, but it’s important to look at closing costs well. These can vary widely, so its best to shop around.

Because there are a lot of bad deals out there, do some research to make sure you’re dealing with a reputable broker and lender. If you were happy with your original lender, consider checking there after you’ve done some research on rates and closing costs available elsewhere (for example, on the Internet). Sometimes the original lender will bend a little to keep your business, and the process will be easier for you. However, quite often the original lender has sold the loan to another lender.

Be careful about shortening the term of your loan, which raises monthly payments. Many people have trouble meeting these higher payments, especially in times of unexpected expense or interrupted income. It often makes better sense to make additional principal payments when you have extra money, without saddling yourself with a heavier monthly obligation.

Paying an extra amount toward your principal each month reduces your overall loan cost without incurring the expenses associated with refinancing.

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Author: Jim Antonilli

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