Junaid Raza Syed (Senior Editor/Department Manager FS)
Doing something for the first time always feels scary, no? And when it is something as significant as buying a home, you bet that the scary meter presents elevated levels.
According to Forbes, when home buying is at its peak, first-timers are usually stressed. The fact that affordable housing is hard to come by doesn’t do them any favors, and the media outlet equates finding an affordable home to winning the lottery.
Should you be lucky enough to find one, move fast to secure that mortgage, but make sure that it makes sense financially, and that it will remain so even in the future.
How about some mortgage tips to help you on your way?
Apply for What You Can Afford
It may seem obvious, but you’d be surprised just how many people spend way much more than they can afford on mortgage.
According to SuperMoney CEO Miron Lulic, this problem is especially persistent in Southern California, largely because homes here cost a fortune.
First-timers may, unfortunately, end up paying an arm and a leg for mortgage. Yes, the couple may afford the monthly payments, but you find that all other aspects of their lives get crippled. Naturally, you don’t expect there to be any joy in this, do you?
The couple may afford the monthly payments, but at what cost?
Lulic says that you should consider other expenses such as travel, and most importantly, savings when applying for a mortgage.
And while at it, make multiple applications, however painful it may be. As the CEO puts it, treat mortgage applications as some sort of window shopping. Online sites make the applications easier, and after doing so, go with the one that offers the best rates.
Do not, he insists, fall into the trap of going with the first mortgage lender that sends their offer as most first-timers do. Wait till you have several offers, then compare and contrast.
Also, don’t jump on board with the lender that your real estate agent recommends. In his experience, Lulic has noticed that brokerage firms don’t offer rates that he’d recommend.
Getting the Best Interest Rates
With any loan, the thing that increases the debt burden has got to be the interest paid. As such, you should try as much as possible to reduce the amount of money you pay where interest is concerned.
The most obvious way to minimize this rate is to pay as a huge down payment as you possibly can, Lulic says. To bring it down even further, you should minimize your debt-to-income ratio. If you are lucky to have a co-signer in your parents, then you should get yourself an enviable interest rate.
If your parents are willing and able to be co-signers, you should get yourself a favorable interest rate
Buying Points for Lower Rates
Lenders offer points to draw in borrowers, and as you would expect, this works in the lenders’ favor. Don’t they always seem to give us offers that end up benefiting them?
According to Lulic, a first-time buyer may not know this. In buying the points, say ones worth $5,000, you’ll have paid part of your interest upfront as opposed to how it is done over a stretched period of time.
If you don’t intend to own the home for long, buying points will have been a poor decision
And yes, they will offer you a lower interest rate. However, if you don’t intend to own the home for long, Lulic says that buying the points will have been a decision that makes zero financial sense.