Loans & Mortgages
sound advice for financing your home
Making wise financial decisions
Most people shop for a home before they shop for a mortgage. But, really, first you need to know how much of a mortgage you can afford, and then look for a home that can qualify for the mortgage you can afford. Consequently, it’s best to pre-qualify for a home mortgage before you start looking seriously at houses, let alone make an offer on one.Mortgages come in many variations, with a number of different options, so you should consult a lending professional to help you choose the right loan for your personal circumstances. Here’s a quick overview of two common types of mortgage loans:
Types of loans
HOW MUCH DOWN PAYMENT DO YOU NEED?
The rule of thumb for down payments used to be 20% of the appraised value of a home. That can add up to a lot of money, especially for a first-time home buyer. Fortunately, Private Mortgage Insurance (PMI) purchased by the home buyer which protects the lender in the event of a default on the loan. PMI enables you to put less than 20% down to qualify for a mortgage, because it eliminates risk for the lender. The downside is that PMI is expensive — for example: in most cases, buyers can discontinue paying on PMI when their equity in their home reaches 20%.
WHAT ARE POINTS?
Points (also variously referred to “loan-origination fees,” “discount fees,” or “buy-down charges”) are fees that lenders charge up front in exchange for a lower interest rate over the life of the loan. You can usually expect to reduce your interest rate by ¼ to 1/8 of a percent for every point you pay.
One point is equal to 1% of your loan amount. So, if you’re borrowing $150,000 and have to pay one point in fees, it costs you $1500. Like annual mortgage interest, points are 100% tax deductible in the year that you pay them.