Despite what you may have heard, it is possible to pay off mortgages fast and plenty of Americans do it. Getting a mortgage in the first place, however, can take a little bit of knowledge and know-how.
When it comes to home loans and mortgages, there are some things that most don’t really know about, and not being prepared can make the process more difficult.
In this article, we will cover the 10 most surprising mortgage facts, which might help you make a better decision. Keep reading to find out more.
1. The Annual Percentage Rate Measures Loan Cost
Many people don’t really have an idea for what truly is the costs of a mortgage loan. It’s not just the mortgage rate, there’s more going on.
In addition to the interest, you still have to consider closing costs, upfront origination, mortgage points, and much more to get a sense of the total cost of the loan.
For instance, the APR creates allowances for those costs, providing you with the opportunity to gauge a loan with many lenders. It’s not uncommon to meet lenders that provide lower rates, but in the end charge significantly higher APR, which in fact will cost you a lot more.
2. Different People = Different Conditions
This might seem obvious, but it really isn’t. For instance, home loans have been on the grid for federal regulation recently. The government continues to push efforts for preventing abuse of the system, and procedure standardization.
But there is no regulation for lenders to provide the same rates on a mortgage. Lenders are free to charge whatever they like in service fees, such as credit checks, title insurance, appraisal, and more.
The only way to apprehend these mysterious surcharges is to compare notes and read the small print.
3. Rates Change Quickly
Most homeowners think that their rates are stable. But much like bonds, stocks, and other financial faculties – mortgage rates also succumb to the market forces. As a result, a quote in the morning might not be the same as the quote in the evening.
It’s not really a big problem, considering that rates are quite low now, but if you belong in a challenging interest environment, you might as well consider the crucial aspect of the value for locking in a mortgage at a good rate.
4. Low Down Is Still Available
You know that putting down at least 20% will provide you with equity in the home. But most people have a hard time saving up that kind of cash.
However, that’s not the end-all-be-all. For instance, some programs from agencies, such as the Department of Agriculture, Veteran’s Administration, and the Federal Housing Administration can provide you with financing with no money down.
FHA loans are quite popular, and most of the terms are stable at 3.5% down on all payments, if possible. But even then, they are quite lenient. You could also try out a jumbo loan.
5. Refinancing in Tough Times Is a Possibility
In the financial crisis, homeowners found themselves in a tough predicament. They owned more than the home was worth, therefore it was practically impossible to take advantage of any low-interest refinancing option.
But with the help of the Streamline Refinance and Hoem Affordable Refinance programs, some smart homeowners were able to refinance their homes even though they were in a very tough position. Of course, different rules will apply, depending on who you have your initial loan backed by, but if you are looking to refinance, it might be a good idea to consider those programs.
6. A Student Loan Probably Does Not Affect Your Debt to Income Ratio
As a student, you might be quick to think that your student loan will an effect on your debt to income ratio. But they are in deferment, meaning an underwriter can exclude it when making their final calculations to figure out your DTI ratio.
If your student loan remains in deferment, you have probably graduated from college, and you will get a great job with a higher income any time soon. At least, that’s the expectancy.
7. Self-Employed Will Have a Tough Time
In many cases, a self-employed person will have a hard time finding a mortgage, because they already write off so much income. This provides an image that they don’t have much money, to begin with.
If you own a business, you realize that showing the IRS an insignificant amount will help you pay fewer taxes. But it also means you look like you earn less money to those who will be lending you money.
8. Collections Are Not That Bad
An underwriter will rarely care about your collection accounts, especially if they are medical debts. Some lenders will overlook your credit check obligations if the credit score is not high enough.
One would think that having accounts in collections proves you to be unreliable. But in some cases, a lender will approve your application regardless of that, given that you have a decently high-enough credit score.
9. Pay Extra for Term Reduction
If you decide to pay more on your house bill each month, you will shave off multiple years of your mortgage in advance. And that’s a great thing.
In a mortgage, time is so important when it comes to money. So, if you shave off time, you get to save thousands of dollars in interest over the long game.
10. Loan Payments Can Be Automated
Most lenders will have some sort of way for you to automatically deposit money from your preferred account into the lender’s funnel. With this, you can ensure that your payments are made on time, assuring you that a late payment will not come back to bite you in the back with a diminished credit score.
These Are Mortgage Facts Unhinged
Now that you have uncovered 10 mortgage facts, you are well on your way to securing a better home loan and making a better decision in the long run!
What matters in the financial world is setting knowledge into action. You have the tools to get it done!
If you’re interested in reading similar articles, check out the rest of our blog for more tips and tricks.