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Kathy S. Koops GRI

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How to Avoid Mortgage Meltdown

filed under: For Buyers posted on April 12th, 2016

Getting a mortgage“Buyer Beware”, “Look Before You Leap” and “Don’t Get in Over Your Head” are all good ways to avoid mortgage meltdown in today’s real estate market.

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For most of us the most expensive thing most of us will ever pay during our lifetime will be “the mortgage”.  And while we spend hours online searching for the best price on cars and for the best deal on a house-it’s pretty amazing how uninformed most buyers are about the ins-and-outs of securing a mortgage loan.

What you see may not be what you get

So many things are tied to your credit rating – what you pay for insurance, credit card interest rates, car loans and -mortgage loans.  Lenders advertise rates and buyers assume that’s what they will pay but unless you have a “pristine” credit rating and history there is a good chance that your interest rate will be higher.  Read the fine print and don’t be afraid to challenge the numbers if the bottom line doesn’t make sense.

Compare Mortgage Lenders

Don’t be afraid to compare lenders.  Some buyers prefer working their bank or credit union while others hunt down mortgage brokers.  Loan officers employed by the bank or credit union are only authorized to use the types of loans that their employer supports.  Mortgage Brokers typically represent (or have access to) multiple lenders/loans and may be a better choice for some buyers.  Either way, as a buyer, you need to compare apples to apples.  Make sure you understand the loan estimate, loan origination fees, APR (annual percentage rate), rate lock, closing costs and other costs (some lenders charge extra to pull your credit reports- some don’t)  and then make sure the information is the same from both lenders.

Compare Types of Loans

Things to think about:

  • Term of the loan- 30 years, 15 years or other.  Your decision affects monthly (interest and principle), interest rate and how much interest you will pay over the life of the loan.
  • % Interest rate type- fixed or adjustable.
  • Loan type – FHA, Conventional or a special program.  Many of today’s buyers finance a mortgage using a FHA, 30 year loan with a fixed interest rate.  But that type of loan may not make sense for you.  Do your research, ask questions and make an informed decision.

Waiting for interest rates to drop

  • Mortgage interest rates are low.  Waiting for rates to drop may save you $10 on your monthly payment but as the number of homes for sale continues to shrink the average sale price is rising.  So waiting for a better interest rate may cost you more because you ended up paying more for the property.  And while rates have remained low for quite some time there’s not guarantee of lower rates in the future.  Something to think about.

Buying a home is an emotional roller coaster but finding the right type loan and avoiding mortgage meltdown requires investigation and taking the time to understand the best  loan type for your needs.

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