Around the House: Shop, Investigate, and Understand Terms When Home Financing
Mortgage money in America continues to have historically low interest as the Federal Reserve keeps interest rates low and the investors search for safe havens to invest. It is a good time to buy or refinance a home due to the low rates, and the mortgage options are the most ever offered to consumers. Just one click on the internet can show a host of online companies willing to extend a mortgage to you at very appealing rates, and there are mortgage providers scattered throughout Central Florida who can offer in-person services.
With so many options consumers must be cautious, because the quickest and easiest deal might not be the best. A ploy by many online providers, not only in the mortgage sector but other areas, is the easy click system which may be relegating away terms and protections that could be essential later in the life of the loan.
Before signing with any mortgage provider, check out the strength of the provider and confirm they are highly rated as a company with substantial assets and quality customer service. Don’t be afraid to research and ask the hard questions. Beware of any mortgage provider who is pushing you to close the loan quickly as there is usually a reason which benefits them but could be unfavorable to you.
Next, and probably most importantly, understand the terms and what you are reading. Do not simply agree to terms without a solid understanding of what you are checking. If you are a novice that does not understand mortgages, you should probably consider a mortgage company that can provide live in person counsel. If you are signing a large mortgage without the assistance of a legal professional on your side, it is like going to a bear fight with a switch. If you don’t understand any part of the contract- seek legal help.
Be very careful of hidden costs like Private Mortgage Insurance or PMI. PMI is insurance that most lenders require when they are financing a home with a down payment or equity less than 20 percent. PMI does not protect the homebuyer, but it protects the lender, and the costs of PMI can range from .25 to 2.0 percent of your loan’s balance per year. While that doesn’t sound like a lot, it can be a large sum of money during the life of the loan. Many homeowners refinancing their homes will get hung with PMI, because they take out too much equity. This can be a hidden charge that rears its ugly head at the closing table, and at that time, it is too late for many to back out. Always ask and know the PMI requirements of the loan.
Study closely the time of the loan and the overall effect on your long-term out of pocket costs. Understand what the taxes and insurance requirements of the loan are because many homeowners are blind-sided by the monthly or yearly cost of taxes and insurance. Also, be aware of how much money in reserve your loan requires to cover taxes and insurance as this can be a huge surprise for many homeowners.
Finally, make sure you keep your credit in order and stay within your means. Many new homeowners will buy a home, and then purchase new appliances, or do costly remodels that will over-extend them. Smart homeowners will sit down and realistically look at the total costs to fix or supply their home. Make a real budget and don’t kid yourself. Unexpected repairs, medical costs, and living expenses occur, and if you are house rich but monthly poor, you will not keep your home.
Homeowners need to be cautious when buying or refinancing a home, and quick processes with easy clicks on a computer can create huge issues. Know the details before signing.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.