Applying for a mortgage loan

What not to do before appying for a mortgage loan

When you apply for a mortgage, lender looks at your "debt-to-income" ratio. There are several strategies to increase your credit worthiness. Here are some of them. (read on).

Decide on the type of mortgage you want

There are as many types of mortgages as there are cable channels. Study the benefits of each type of mortgage before applying for a loan (read on).

Choosing the right lender

You have surely received enough junk mail promising low mortgage rates to know that you should be vary of those who promise rock bottom interest rates. Examine the reputation of the company and ask your friends and family for recommendations. You should know that the company that promises the lowest mortgage rates need not be the cheapest for you. There may be other charges and fees that they will collect from you prior to approving the loan. If needed, get help from your accountant to figure out which lender will turn out to be the cheaptest for you.

Mortgage rates

If you take a $100,000 mortgage for 30 years, you may end up paying nearly $300,000 to your lender by the end of 30 years. Therefore, lower interest rates can mean huge savings in the long run. The best time to buy a house is when interest rates are low (as it is now). The mortgage rates offered by lenders tend to vary. Therefore, shop around.

Buying points

This is a way of reducing the interest rate on your loan. You can buy points from the lending institution. Each point costs 1% of the loan amount. That is $1000 for a $100,000 loan. Each point brings down the interest by 0.25%. You can buy upto two points. This means that if the interest rate is 6%, on a $100,000 loan, you can bring down the interest rate to 5.5% by paying $2000 to the lender at the time of closing.

Is it worth it? It has been said that if you stay in your new house for more than 4 years, you will break even. And if stay longer. lowering the interest by 0.5% will save you money. In these days of refinancing, I am not sure that many people save much money by buying points. You could keep the $2000 and later use it to refinance the loan to a much lower rate, if you are lucky.