Shopping For A Home Loan

Dated: 01/17/2019

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The decision to buy a home puts you into a realm full of things you have not dealt with prior, especially if you used to rent your home, whether an apartment or house. Owning a house brings a whole new experience.

For example, consider taxes and mortgages. When you’re looking to purchase a home, it’s important to understand what can be deducted and what cant. A powerful piece of information many home buyers overlook is the effect of mortgage interest on their federal income tax payments. Mortgage interest is deductible and powerful financial planning tool. Calculate the amount of mortgage interest deduction and include that in your annual financial planning. Approved, Stamp, Approval, Quality, Agreement, LabelThen, make a point of checking the IRS Form 1098 from the lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid.

Some of the nondeductible items include home repairs, general closing charges, homeowners’ association dues, as well as property hazard insurance premiums.

Getting a loan to purchase a home can be a tricky business and there are terms one might find hard to understand – e.g., the term “mortgage points,” which refers to the interest that’s been prepaid. It’s possible to lower your mortgage loan’s interest rate by “buying points.” Mortgage points, or discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” and will decrease your monthly mortgage payment.

One point costs 1% of your mortgage amount (or $1,000 for every $100,000). Essentially, you pay some interest upfront in exchange for a lower interest rate over the life of  your loan. In general, the longer you plan to own the home, the more points help you save on the interest over the life of the loan.

For example, Bank of America, Better Money Habits, uses a chart illustrating points using a loan amount of $200,000.

How do points affect your loan?

Loan amount: $200,000


No Points

1 point

2 points

Cost per point(s)

0

$2,000

$4,000

APR*

4.5%

4.25%

4%

Monthly payment**

$1,013.37

$983.88

$954.83

Monthly payment savings

N/A

$29.49

$58.54

Break even (time to recover point costs)

N/A

68 months

68 months

Total payment savings on a 30-year loan

N/A

$10,616.40

$21,074.40

It’s possible to buy the points to ensure the interest rates are low when you’re getting the loan. Buying the points can help you down the line by guaranteeing that you save money, especially if you plan to stay in the house for an extended period of time.

However, the amount of cash you’ll save by buying the points depends on the number of points you buy. For instance, if your mortgage is $200,000 and you buy two points, you will owe $4,000 when closing.

Further related to taxes and property ownership is that once you own a house, you’re a property owner, with the attendant obligation to pay property taxes.

The usual method of paying property taxes is to escrow the amount of annual taxes within the mortgage payment. The mortgage servicer will pay the taxes as they are due. Calculator, Calculation, Insurance, Finance, Accounting

When buying a house, your lender will calculate the total amount of real estate taxes as well as the number of days in a property tax year that you were the owner of the said property and escrow that amount, adding it to the mortgage payment.

According to a Bill passed by the U.S. Senate in 2014, homeowners can deduct mortgage insurance premiums from their taxes. Private Mortgage Insurance (PMI) is insurance from private insurance companies used with conventional loans to protect the lender if the homeowner stops making payments on your home loan. PMI can be required as a condition of a loan and arranged by the lender at the buyer’s expense.

If PMI is required, it typically makes up a portion of your monthly mortgage payment, in addition to your principal, interest, property tax, and homeowner’s insurance.

People have been known to spend months looking for the best possible home and eventually find a good one. However, many of these individuals fail to understand the importance of finding a good loan. In the end, the new homeowner has a nice home, but a bad deal when it comes to the mortgage.  

Not many people have the capability to buy a house for cash; most people will require a mortgage. Therefore, you not only need to go shopping for a house, but you also should go shopping for the best loan deal. There are different types of loans out there, and it’s best to check several then compare them.

Shopping for the best loan on your own can be a daunting experience and might be a difficult task to accomplish by yourself. To overcome that hurdle, its recommended that you hire a mortgage professional for many of the same reasons you should engage a real estate professional.

Another task you should work on before you begin looking for a house is organizing your credit issues. It’s important to ensure your credit is in order, because making any mistakes at this juncture can take months to correct and might even end up sinking your chances of owning a home.

Finding the best mortgage deal is made even more complicated by the fact that the mortgage rates change daily or even several times in a single day. One can get a good mortgage deal from a mortgage broker, a bank, or a mortgage lender.

However, if you’re going to buy a home and your down payment is less than 20%, you’re going to need private mortgage insurance. That can add about $100 per month for a home valued at $100,000.

Banks are generally known for having the fewest mortgage options because their products are tailor-made to suit the bank’s interests.

Mortgage brokers are known to offer the largest amount of options. Working independently and with several financial outlets, brokers can find the best loan for the buyer from different lenders.

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Daryl Hanna

Daryl Hanna and The Hanna Group are committed to bringing the respect back to the real estate profession through making sure each and every transaction is handled with the utmost care & respect!! The ....

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