Even if you could afford to pay for a home in all cash, it may be the more prudent financial move to get a mortgage. This allows you to keep your money in the bank, stock market or other accounts while you pay for the home in monthly installments. Of course, it is important that you negotiate a home loan that is in your best interest. How do you know if you have accomplished this goal?
What’s Your Down Payment?
You may have heard that you have to put 20 percent down at closing to get the best terms on a home loan. This is not necessarily true. Your lender may allow you to put down 10 or 15 percent without the need to pay private mortgage insurance. If you get a government-backed loan, you could pay as little as 3.5 percent or even nothing at all.
What’s Your Interest Rate?
Regardless of the type of loan that you use to finance your home purchase, you should get an interest rate of less than 5 percent. However, your rate may be higher if you have average credit, have gone through a recent bankruptcy or otherwise have blemishes that lenders need to account for. Interest rates tend to be lower for homes because they are secured assets, which means that the lender can foreclose on the property.
Did You Overpay for Closing Costs?
Generally speaking, you should expect to pay about 5 to 7 percent of the home’s price in closing costs. In other words, if you were buying a $100,000 home, you would pay between $5,000 and $7,000 in closing costs. Closing costs typically include property taxes, your homeowner’s insurance premium and any down payment made. However, it could also include fees charged by the lender.
Ideally, you will review the good faith estimate a lender is required to provide prior to closing to find these fees and try to negotiate a lower amount. Lenders such as Gladiator Lending may be willing to compromise in an effort to get you the best possible deal on your home loan.
Is There an Early Payment Penalty?
A prepayment penalty can be problematic for a variety of reasons. First, it means that you can’t make extra payments, which could reduce the amount of interest paid to the lender. Second, it may mean that you can’t refinance your loan. This is because refinancing a mortgage means paying off the current balance and replacing it with a new one. Reputable banks and lenders such as Gladiator Lending generally don’t include prepayment penalties in their mortgage loan contracts.
Buying a home can be an important milestone in your life regardless of how old you are. It also represents a long-term commitment on your part as most people own their homes for at least five years. Therefore, it is important that you find a property that you like as well as a mortgage that you can afford to pay both now and well into the future.
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