Experts recommend home ownership as one of the best investments consumers can make, as long as they do it properly. However, since it comes with considerable long-term costs, buyers should know what they can do to make their overall mortgage expenditures more manageable. This way, they can avoid foreclosure and reap the benefits of owning a home.
Here are three strategies home shoppers should use to find the right mortgage, secure better rates, afford their monthly loan payments, and keep foreclosing risks at bay.
1. Weigh the Pros and Cons of Fixed-Rate and Adjustable-Rate Mortgages
Lending institutions and companies offer two different types of home loans: the fixed rate and the adjustable-rate mortgages. Consumers should factor in how much they can afford when deciding on which of these two to get.
For buyers who intend to stay in the same home for a decade or longer, the unchanging interest rate applied on a fixed-rate mortgage makes it a good option. Those with stable and expected income and who don’t want to risk their monthly payments going up will also find this type of home loan better suited to their needs and preferences.
On the other hand, the lower initial rates that come with adjustable-rate mortgages (ARM) make them more attractive to shoppers who don’t intend to live in the same house for a long period of time. In addition, borrowers who believe they can pay off their debts by the time the “teaser rate” ends may want to consider this home loan, especially since it has lower monthly payments.
2. Maintain a Good Credit Score
A good mortgage deal involves more than just a good interest rate; it should also have other cost-trimming features. For instance, some lenders may not require the purchasing of a mortgage insurance even if borrowers can’t put down the entire 20% down payment, as long as they have good credit scores. This said, improving credit standing can really help mitigate costs. Consumers should also note that even the slightest difference in rates can already mean savings amounting to thousands of dollars, or expenses costing thousands more.
3. Only Borrow the Necessary Amount
Many home buyers have made the mistake of taking out a loan with an amount greater than what they can actually repay. Just because a borrower qualifies for that amount doesn’t automatically mean they should already borrow it. To prevent unnecessary increases in monthly payments, consumers should only borrow what is necessary to purchase a house. And if possible, shoppers should also grow their savings for a down payment, to further reduce the overall money that goes into paying the mortgage’s interest.
The Simple Dollar: http://www.thesimpledollar.com/best-mortgage-rates/
Federal Trade Commission: https://www.consumer.ftc.gov/articles/0189-shopping-mortgage