It’s kind of funny, most people who call me all want to know, “What’s the rate,” and I’ve had people tell me that’s all they need to know. Is that all you really need to know? Of course not! What’s just as important as the interest rate are the costs involved to get it. Looking at the interest rate without looking at the costs is like standing on the street corner and looking one way down the street. It looks good, so you step out into the street, and that bus called Closing Costs is going to hit you from the other side. Seriously?
Bottom line: You can get just about any rate your heart desires, but you’d be better be sitting down when you discover what some of those “teaser” rates will cost you. And as I’m always saying, look at the whole picture.
Before you tell someone, “l don’t want to pay any points,” just know that when you decide you’re not going to pay any points, know that you’re going to pay a higher interest rate than would be available if you were to pay a discount point (1% of your loan amount) or a partial discount point. I know it seems funny that we call something you pay for a “discount,” but it in effect is “discounting” the rate you’re getting by paying a point or points. Here’s the real deal as far as paying points. Whether or not it makes sense to pay for buying down the rate mostly depends on how long you’re planning on paying on that loan, NOT the loan term. In other words, who cares how much you’re going to save over 30 years if you’re only going to have the loan for 7 or 10 years? Look at the numbers over a realistic timetable for you, and consider all of your options before making a decision.
The rates and pricing that are available to you are largely dependent on what your middle credit score is when pulled on a mortgage credit report, or MCR. The credit score that your credit card company, bank or consumer credit report site is NOT going to be the same as it is on an MCR. The mortgage report is a much more thorough report, and the scores can be anywhere from 20-50 points lower than you’ll find on a consumer site, so have an idea what your credit scores are from a consumer standpoint, and when you get your own credit report, it doesn’t count as a hit against you. You never want more people than necessary to pull your credit and NEVER go online and put your social security number into a site. You’ll get a lot of unwanted company.
When it comes to credit, there are things it makes common sense to do that sometimes can hurt you credit score wise, even if it seems as if it would help you, so be careful and speak with someone who’s experienced working with credit BEFORE you start paying off old debts or collections. Another NEVER is NEVER close an account. If you aren’t using one, let it die it’s natural death, but it will HURT your credit score if you go closing accounts. The credit score modules want to see that you have plenty of available credit that you’re not accessing. If you’re wanting to pay down debt, don’t start with the small ones; they’re not hurting you, or keeping you from being able to do anything. If you are trying to qualify for a home loan, the ones it will make a difference to pay down or eliminate are the ones with the larger monthly payments.
Do not consolidate your credit card debt and shove it onto one card. That ALSO will hurt you. It’s much better to have your debt spread out over several accounts. You also want to try to keep the balances on those cards at no more than 30% of the high credit limit. If you want to pay down the cards, spread out the amount you’re paying down if you’ve got several that are inching up towards the limit
If you’re thinking you’re going to be purchasing or refinancing a home in the next couple of years, this is the wrong time to decide to start your own business. Do the house first, THEN start the business. Timing is everything, right? It also matters if you get paid differently than you used to, and even if you’ve taken a job where “potentially” you’re going to make more money, we can’t use “potential” income, only what you’re actually receiving, and there are some limits on that as well. There are also certain types of income that we either have to prove you’ve received for over two years, and other types where we have to prove you’re going to be receiving at least another three years for us to be able to use it as “qualifying income.” This is just one of the many reasons why the mortgage pre-approval process is really not a DIY project.
Generally speaking, 15 year loans normally have lower rates than 30 year loans. There are also 10, 20 and 25 year terms available. If you are absolutely comfortable NO MATTER WHAT, with a 10 or 15 year loan, then there’s no reason not to consider those. But, what’s more important than the interest rate on your loan? The comfort level of your payment. It makes absolutely no sense to avoid a purchase or refinance loan just because you can’t comfortably afford the payment on 15 years. Do not make the mistake of going for a 15 year loan because the rate is lower than it is on the 30. Get something that’s comfortable for you, and if you’re refinancing, make sure it’s something that’s actually going to benefit you. We do many loans for retired folks, and just about every one of them does a 30 year fixed rate loan, because it offers the lowest payment and therefore, the most security for the borrower.
As we get younger every year, we get to appreciate and prioritize comfort. Make sure you do the same with your mortgage.
For more information, visit www.bakermortgage.com.