Don’t Have the 20% For The Downpayment? You’ve Still Got Options!
In order to avoid paying more than you have to for your mortgage, you need to come up with a plan, which will include shopping around and crunching some numbers with the financial institution, and also by yourself.
It is important to not put all of your trust into these institutions. Many of them don’t have your best interest at heart; they have their own financial incentives when it comes to offering certain rates. Low interest rates may be hidden with high APR’s and a higher down payment. It is important to do research and compare quotes.
It is said that credit reports are mostly used to get mortgages. Know that conventional lenders are going to be looking for a credit score of at least 700. FHA loans come with more flexible standards, but you are going to need great credit to buy a home.
Now is the time to start saving money, as the more money you can put down on a house, the lower the mortgage and interest payments you will have. You’d be surprised at how much your interest rates will drop by putting more cash down. Read: Alternatives When You Don’t Have a 20% Down Payment.
Banks are going to want business from qualified buyers with great credit scores. Therefore, if one bank offered you a low interest rate, the next may be willing to lower it a little more just to get the business. There’s no excuse to not be gathering many quotes—there are too many options out there to do this. You can even get quotes online in your living room. Be careful to not just go with the cheapest quote, as there are more factors into a loan than just one of the rates.
The interest rate is important but there are other factors too. Ask what the closing costs are, and if there are penalties if you decide in the future that you’d like to refinance. There are many questions you should look for answers to, besides focusing on a low interest rate.
If you can’t afford to put down the standard 20% down payment, you may need to consider PMI, or, private mortgage insurance. This insurance lowers the risk for the lender, which will help you get a loan when you otherwise couldn’t. However, you have to pay for this insurance which can add up to a lot of money each year to carry the loan. The If your down payment is less than 20% you’re considered higher risk.
PMI, or private mortgage insurance, lowers the risk for the lender but here’s the catch: You have to pay for it and that can add thousands of dollars to what it costs to carry the loan. The solution: save up until you can afford the down payment.
Realize that mortgage rate offers are constantly changing. This is why its important to get a written quote if you are told about a good deal. That quote will remain locked for a certain number of days. Know that if you do not close within that period, you will risk losing the deal.