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BUYING A HOME -
Most people require financing to acquire a home. Mortgages and home loans come in all shapes and sizes, depending on a myriad of factors, and can be found from many sources. The three factors that make up most of the cost of a loan include interest rate, length of loan, and fees and closing costs. Try reducing costs with the following tips.
1. Interest rates vary due to market conditions, the borrower’s credit rating, length of term, and whether the interest rate is variable or fixed. Consider the following in trying to reduce interest costs.
a. Most people do not have the luxury of waiting for market interest rates to decline
before purchasing their home. And nobody can predict with any certainty whether
rates will go up or down in the future. So, if you need a home and have found the
right home, there is not much you can do with respect to the market rate. However,
if you are considering refinancing, you can use your flexibility to try to take advantage
of dips in interest rates. Generally, a “rule of thumb” when considering refinancing
is if current interest rates are more than one-
b. In some instances, there is something you can do about your credit rating prior to taking out a home loan in order to reduce interest cost and, perhaps, the availability of loans. Please look under the “Banking & Credit” heading in the “Home Finance” section for a discussion of credit ratings and scores and what can be done. So, plan well ahead and see if you can improve your credit profile before applying for a loan.
c. In addition to the amount of the loan, the term of a loan has a great deal to do with the size of the monthly payment. The longer the term the smaller the payment, but the more payments to be made. And, with more payments made, there will be more interest paid in total. So, in order to reduce the total amount of interest paid on a loan, try to get the shortest loan term possible within your budget. You may not be able to spend as much on a home, but you will spend less on interest.
d. Lately, variable rate loans, where the interest rate (and therefore monthly payment) adjusts at specified times in accordance with market conditions, have gotten a lot of negative publicity, primarily because of very low “teaser” rates. If a deal sounds too good to be true, it probably is a deal you should not complete. But sometimes, adjustable rate mortgages, with reasonable starting rates and adjustment provisions, can be a reasonable way to go, especially if you feel interest rates may drop in the future. Just make sure you know what you are getting. Otherwise, stick to fixed interest rate loans, even if the rate is higher.
2. The source of your loan can have a major impact on the interest rate, the type of loan that might be available, and the closing costs for the loan.
a. Sources of loans include banks, credit unions, savings & loans, mortgage companies, and mortgage brokers. If you are a veteran, make sure you check into the VA loan program. Many lenders can help you with eligibility questions for VA loans, as well as the advantages and disadvantages of VA loans versus conventional loans. In any case, make sure you shop around for your loan. There are major differences in costs from provider to provider. This is true between different types of providers (say between banks versus mortgage companies) and among the same types of providers (from one bank to another bank). And make sure you look into all types of sources including mortgage brokers. As long as they are legitimate (and most mortgage brokers are) they can have some great loan products.
b. To find a loan, look in the newspapers and get an idea of the rates currently offered. Pick a few banks, mortgage companies, etc. and contact them to see what they have available. Look in your yellow pages for mortgage brokers and contact them by telephone to see what they are offering. You will find large differences among the mortgage brokers, so it pays to contact several. And do not forget the Internet. Many mortgage companies and mortgage brokers offer loans over the web. Most are legitimate and sometimes offer the best deals. BankRate.com and many other sites can assist you in comparing mortgage alternatives.
c. When comparing loan alternatives, make sure you not only consider interest rates and length of loan, but also closing costs and fees (including any points, which are up front interest payments). Any reputable mortgage provider (including those over the Internet) will provide you with a written estimate of all costs involved in the loans they offer, so you can understand and compare. And do not be afraid to negotiate interest rates and particularly fees (including fees charged by closing companies and title insurers) . Sometimes you will be surprised how certain fees are made to “disappear” in order to get your business, and how interest rates can decline. And, finally, make sure any loan you are considering does not have prepayment penalties. If you move before the loan is repaid, or want to refinance, you do not want to have to pay money to get out of your loan.
3. Once you have found a cost-
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