“After closing, you can paint an ugly house, but you can’t paint over ugly financing.” Jo Garner
Real estate is still hot, and mortgage rates are still low. When a home buyer gets his offer accepted, he had better be able to move –and fast. As a mortgage loan officer, the best advice I can give anyone getting a mortgage is to get preapproved and compare more than one financing option. When you sign the last paper at the closing table, you want the contented feeling of satisfaction, knowing that you made the very best decision.
Here are some general rules of thumb to consider:
1. If you plan on keeping the mortgage for over five years, strongly consider getting a mortgage with a fixed rate and not a variable interest rate. You will enjoy the stability of a principal and interest payment with a fixed interest rate that never changes. Steer clear of variable rates and payments that can wreck your budget and lifestyle.
2. If you plan to have a mortgage less than five years, you can compare some mortgage products with lower-than-normal interest rates that adjust over time. To lessen some of the risks of payments ratcheting up, look at mortgage programs with strong safety caps on how far the interest rates can move at each adjustment.
Example: Some loan customers want to save time and avoid providing lots of documentation by opting for a quick, variable-rate home equity line of credit instead of getting a more stable fixed-rate mortgage. It may be easier today to get the equity line to buy a home. It may be tempting to consolidate debt or fix up your home using quick variable-rate financing, but will you be paying the piper big bucks when the rates start going up again?
If you plan to be in the home over five years, compare the equity line with its variable rate risk with a standard and stable cash-out fixed-rate mortgage. The standard fixed-rate mortgage with no prepayment penalty can be a cost saver over time.
3. If you know you will be getting a lump sum within less than five years to prepay the principal balance owed on the mortgage, take a look at how that lump sum prepayment will affect how much you will pay over the life of the variable-rate loan. Depending on the large lump sum you can prepay against principal early in the loan, the variable rate might be your best bet on that scenario.
4. For homebuyers paying less than ten percent as a down payment, compare the FHA loan program with the conventional program. Borrowers will pay less private mortgage insurance to the lender on the conventional loan program, but the FHA program is more forgiving for borrowers with challenged credit.
5. For borrowers with little or no down payment, explore loan programs such as the VA 100% loan for veterans, the 100% Rural Housing loan, and programs using down payment assistance.
Our customers appreciate the opportunity to choose when it comes to their home and their financing. As real estate and financial professionals, we earn the status of “trusted advisor” when we present sound options that help our clients feel good about their choice.