Buying a New House, Mortgages

How Much Money to Put Down on a House — Is More Always Better?

As a rule of thumb, many experts will recommend that you put down 20% or more when buying a new home. The reason they cite is that this huge sum paid before the mortgage will show lenders that you are a trustworthy borrower serious about paying off the home yielding a lower interest rate.

Is 20% still the tried-and-true standard or is it possible to buy a home with a smaller down payment? Here are the pros and cons of each option.

The Pros of Putting Down 20%

When you put down 20%, you’re more likely to secure a loan from reputable lenders with a lower interest rate. By putting down 20%, the lender then knows that in the worst-case scenario, they only need to recoup 80% of the home’s value should the borrower fail to pay the loan back. Since you’ve paid more up front, your monthly mortgage payment will be smaller.

Why Less Can Sometimes Be More

Usually, the minimum that you must put down to secure a 30-year mortgage is 3.5%. This is quite a bit less than 20% and will save you some money up front before the mortgage starts. By putting down less initially, you will be able to move into your new home sooner than later without having to spend months or years trying to scrape together the funds for a traditional 20% down payment.

You don’t need to shell out the big bucks to secure a mortgage loan, however, the more you put down up front, the less you’ll have to pay over time. Consider both of the options carefully, and do your research and crunch the numbers before signing any paperwork.

If you’d like to talk about selling your house in Virginia, Maryland, or Washington DC so you can buy another one, head over to our Contact page.

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Mortgages

How to Refinance Your Home

When it’s time to refinance your home, understanding where to start and the exact steps to take can be daunting. If you’re unsure how to refinance your home, it can be tempting to pick the first action plan and end up paying for longer than you need to just to get a lower payment. Going into the process of refinancing fully prepared will keep your confident with what you want and help you make sure that your refinancing fits your goals while staying manageable for your income.

Your goal in refinancing should be to either shorten or maintain the current term of your home loan, while also lowering the rate of your interest. For example, stay you start out with a loan of $200,000 and an fixed rate of 6%, to be paid off over 20 years. The goal of refinancing is to switch out those terms, and come up with something better. For example, the goal of the refinancing would be the same, $200,000 loan, but with a fixed rate of 4% to be paid off over 10 years.

When you get ready to refinance your home, make sure that you know what your credit score is. If your credit score is a little on the low side, you may want to wait to refinance. The better your credit score is, the lower your interest rates will be when you refinance your home.

Before going in, you’ll need to know your home’s current value. Websites like Zillow are perfect for this. For example, you can search the average home value in any county. Take Prince George’s County in Maryland. You can see here the average home value in Prince George’s County. You can do this for any county that you live in. You can see the average rates for other counties, like Anne Arundel County and Baltimore County. This is a good resource, no matter where you live. Once you know your home’s current value, you can start searching for the mortgage rate that will best suite you. You can do this easily online.

Make sure you have all of the necessary documents and paperwork. Even though it can be a time consuming process, you’ll be glad that you put in the effort. Gather up your bank statements, W2s, and check stubs so that you have everything on hand that your lender might need when it comes time to getting your new interest rate.

Remember: refinancing your home can include an array of upfront costs, such as application fees, fees to process documents, and even a charge to run your credit report. Make sure you have the money set aside for the cost of beginning to refinance your home, not just the money you’ll need to start making payments. You’ll also want to make sure you have money set aside for closing costs. Once you’ve decided and settled, you’ll likely need to pay for even more costs at the end of the experience as well.

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Mortgages

7 Smart Tips for Finding the Right Mortgage Company

Your home is probably the largest purchase you will make — and you will do it with debt.

A mortgage is a loan used to buy property. Because it’s for such a large amount, you want to make sure you’re getting the best mortgage rate and working with a lender that offers the best possible terms.

Before you apply for a mortgage, do a little shopping around to see if you can find a mortgage company that fits your needs and can work with your situation. Here’s how to get a mortgage loan with the right lender for you.

1. Understand your credit situation

Your credit is the most important factor lenders will consider, and some lenders won’t work with you unless you have a certain credit score. Before you start the mortgage process, it helps to know where you stand.

You might discover that you need to work with a mortgage company that accepts alternative credit reporting. Perhaps you need to focus on a lender that offers FHA loans because your credit score is too low for a conventional mortgage.

Be realistic about what to expect based on your credit score, and plan accordingly.

2. Don’t forget community banks and credit unions

Too often, we go right to the “big guys.” However, a lot of community banks and credit unions are willing to work with you. These smaller institutions sometimes service their own mortgage portfolios instead of selling them to bigger banks or investors.

As you shop around for the best mortgage, don’t neglect the local players. You might be surprised at what they can do for you, especially if you have taken the time to build good credit.

3. Look online for a mortgage company

The internet offers unlimited possibilities when it comes to information, products, and services. When I bought my house several years ago, I went through a broker at a local community bank. I was wary of using the internet for such a big transaction.

Today, the internet is a secure place to find a mortgage lender. You can visit an aggregator, share your information, and receive several quotes back. It makes it easy to compare your interest rate options and see other terms.

Even though I was reluctant to use the internet when I bought my home, I changed my tune a few years later when it was time to refinance. My refinance was handled almost entirely over the internet after I found the right solution in an online mortgage.

4. Compare mortgage rates and terms from several companies

You shop around for the best price on a TV. Why wouldn’t you shop around for the best rate on something worth 100 times more than your TV?

Get some quotes for an online mortgage, then bring that information to two or three lenders in your hometown. In some cases, local lenders can meet or even beat what you see online. If you’re interested in more personal service and dealing with large numbers in person, this is a good way to try to get the best terms.

5. Look for a lender that understands your situation

As you compare mortgage companies, find out they have the right options for your situation. If you have a low down payment, for example, you have different needs from someone who can put 20 percent down.

Be upfront about your situation and your challenges. Ask potential lenders questions about your financial situation, and what they can do for you. See how knowledgeable they are about programs specifically designed to help your circumstances, whether you are a first-time homebuyer or someone with an unconventional credit situation.

6. Ask a lot of questions and read the fine print

Take a close look at the mortgage company and what they expect. Find out about any fine print, and ask a lot of questions.

Many of us don’t like to look as though we don’t know what we’re doing. However, if you don’t know what you’re doing as a borrower, it could be extremely costly down the road.

Don’t be embarrassed to ask questions. If someone makes you feel stupid because of what you’re asking, they aren’t the right lender for you. Look for someone patient and willing to explain.

Clarify any terms you don’t understand. Also, find out if the lender requires an “earnest money” payment before starting — and if the lender keeps that money even if the loan doesn’t go through. (Hint: If they are vague about what happens to the earnest money, or if they keep it, consider going elsewhere.)

7. Make sure to compare apples to apples

As you shop around for a mortgage lender, be sure you are comparing apples to apples.

Match up interest rates and other terms, and make sure that your quote for interest rates are on the same types of loans. It’s not uncommon for a newbie to look at a 15-year variable rate from one lender and not realize they are comparing it to a 30-year fixed from another lender.

Be clear about matching up the types of loans available. Go in with some idea of what you want, and take notes. Ask for a print-out of the terms that you can take with you and use in your comparison.

Bottom line

The right mortgage company can make a huge difference in your borrowing experience. Whether you get an online mortgage or go the more traditional route, you want a lender that works for you — and offers you the lowest possible rate.

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