Some Ins and Outs of Mortgages

The more you understand about mortgages and home equity lines (also known as HELOC) before you sign a mortgage contract the more you can save in interest, lenders fees, and other costs. As we have seen, an uneducated public can cause a WORLD of problems. It’s important to use professionals. It’s also important to be educated in today’s environment. So here are 5 things to consider when you’re looking at a mortgage.

1. Consider the source:

The internet is a great research tool, but there is also a lot of misinformation as well. We use over 30 different websites in the Professional Real Estate Class and I reinforce that where the data comes from is key. It’s also important to separate unbiased facts from marketing. This can be tricky.

The internet has some great tools, like online mortgage calculators, but be careful not to provide any personal information when using these tools. There are equal amounts of not-so-legitimate companies providing information as there are legitimate companies. Taking time to research and understand mortgage details is important; just remain skeptical of special deals and too-good-to-be true offers. Print information you want to act on as proof of what a company is offering so you can hold them to it.

2. How do mortgage professionals get paid and what you need to watch for?

Mortgage professionals and the organization they represent are paid by fees, often called points. It’s important to look for more than just the best interest and mortgage terms. You also want to work with a professional that will get the job done, anticipate what is needed and be honest with you about the process.

3. Know the REAL COST:

I alluded to this earlier. It’s not just the interest, but the total cost of borrowing that is vital to understand. Here are some questions to ask:

a) What will it cost to pay off the principal early?

b) What is the charge for setting up weekly or biweekly payments?

c) What is the charge if you switch back?

d) What is the cost of shifting from variable to fixed?

e) What is the total cost of discharging the mortgage if you sell the property? These are just a few of the questions you should ask about “other” costs.

The long-term implications of your mortgage are more important than a quarter-point difference in the interest rate. Banks and lenders do not make billions of dollars in profits by missing opportunities to charge fees and take bonuses. Buyer beware. They can also change policies and offerings anytime. Read the small print. That is where these fees and penalties are hiding.

4. Higher rates mean smaller mortgages:

As interest rates go up, the size of mortgage you qualify for will go down. Even if you are prepared to take on large debt, you may not be allowed to.

5. What is the difference between “pre approval ” vs. “pre-qualification?”

“Pre-qualification” is an estimate of borrowing power. It is a statement from your lender saying “based on your income, credit, & debt levels” you are qualified for a mortgage for “x” amount of dollars. This can be accomplished by a simple phone call to a lender. They should also run a credit report.

“Pre-approval” is likely to be a more formal process. Here you have actually completed the application with the lender, possibly supplied them with your income information, bank statements, W2’s, etc. The lender has asked about your employment & also runs a credit report. This is a more complete process. The lender should have run the application through an automated underwriting process.

Neither a ”pre-approval” nor a ”pre-qualification” are seen as absolute loan commitments. Lenders still need to look at property appraisals, verify information, and in many cases, re-check credit before agreeing to make a loan.

Getting a mortgage on any real estate is a HUGE commitment – do your home work, ask questions, and if you don’t get answers that are acceptable, move on.

My next online live Real Estate Class is coming up in August, hope you join me.

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