One night over dinner you decide to buy your first house or condominium. The next morning is the time to start thinking about the mortgage loan. Don't wait until you've found the ideal house. Apply now to two or three financial institutions, including your present bank or savings and loan. While you may not get a better rate, you'll be known there -- and that' an advantage.
Each institution will give you a packet of forms and will qoute you an interest rate, plus points, as well. (One point is equivalent to one-eighth of 1 percent of the loan, payable up front.)
You might as well fill out the forms right now. The exercise will provide you with some insight as to your financial standing and will make the eventual applications that much easier to complete.
Discuss with each institution your plans, the price range of the houses you'll be looking at, what your down payment will be, and any creative-financing possibilities you may pursue.
Ry to get feedback as to whether or not yoy will qualify for a loan if you decide to formally file an application later on. Some lenders will give you this information and some will not. If not, try to find a lender that wants your business a little more than the reluctant lender seems to want it.
Maybe you won't find one, but you should look now before you are desperately trying to line up the actual cash.
Do as much advance work as possible before you make your first offer.
The quoted interest rates will probably be fairly consistent. For purposes of comparison, a difference of one-half of a percentage point on a $100,000, 30 -year loan is about $39 a month. Smaller loans would be proportionally less.
You can get the actual costs from a rate book or Realty Computer book, available from little-insurance companies or from your real-estate broker.
In these turbulent times, interest rates may go up or they may go down. This week's rate may not be next week's rate. Ask about the lender's policy regarding changing its rate after you have applied for a loan.
Be sure to keep track of the quoted rates while you are looking at houses. You'll avoid unpleasant surprises that way.
Suppose you find the ideal house and want to buy it. Should you pay off the previous mortgage and take out a new loan, or should you try to assume the existing mortgage?
First, you'll have to familiaries yourself with the law.
Some mortgages can be assumed whether or not the lender approves, and some cannot. Local real-estate brokers can provide you with the details.
Even if your house-to-be has a nonasumable mortgage, you may still be able to save some money. Suppose, for example, that the existing mortgage is $80,000 at 9 percent, but the lender does not have to let you assume the loan. Also, assume the going rate in your area is now 14 percent.
You might try reasoning with the lender this way:
TEll him that nobody can afford to buy this particular house at 14 percent. also say that you know the lender can block you from assuming the 9 percent mortgage, but why don't you both try to get together and work something out. Say you'll buy the house if the lender will let you assume the loan at 11 percent instead of 9 percent. That way the lender can get 2 percent more on the loan that it has already made without putting out any cash.
What you'll save is the difference on $80,000,or about $186 a month, assuming the same 30-year term.
This type of negotiation works even when you need a larger loan than the existing mortgage amount. If the lender will let you have $20,000 or $30,000 more at a higher rate, but lower than the going rate, it can mark up its existing loan at the same time.
Banks and other lenders are very flexible when you offer them free interest increases.
Sometimes the previous mortgage may be at a higher-than-market rate. Your best tack here is to pay off the previous mortgage with funds from a new, lower-interest loan.
Assume for a minute that you have borrowed $1 000 at 12 percent. The following table shows how you can reduce the length of time it takes to repay the loan by paying a little extra on the principal (the interest-only amount would be $10):
Payment Term (per month) (years) 10.37 28 10.47 26 10.60 24 10.78 22 11.01 20 11.32 18 11.74 16
If all you paid was interest, the payments would be $10 a month. For a 30 -year loan, only 29 cents a month would go toward reducing the principal amount.
Now if the loan were for $100,000 instead of $1,000, all you have to do is multiply the payments by 100. Simply, $1,029 a month would pay off $100,000 in 30 years, but $1,101 would pay off the same loan in 20 years.
In other words, there would be no payments for years 21 through 30, because the loan would already be paid off.m
If the extra $72 ($1,101 minus $1,029) is worth more than 12 percent interest to you, don't make the extra payment. But if the extra $72 wouldn't be missed, and especially if you plan to stay in the house, then $72 a month for 20 years will buy you the succeeding 10 years with no loan payment.
The advice is simple:
Plan ahead and you can be many dollars ahead as well.