Important Issues About Financing
- You can afford a house with approximately 1/3 your stable gross income in a total monthly payment: total up property taxes (about 1.2% of the property value), hazard insurance (about 0.6% of the property value), and the mortgage payment; this is a conservative estimate, and lenders will very likely qualify you for more. You have to decide how much that "dream home" is worth to you. If your income is rising rapidly, you may wish to consider a higher percentage of your income for your home; if it is fixed or rising slowly, then you need to be careful about overextending yourself.
- Get a fixed rate loan. Variable rate loans sometimes make sense if interest rates are likely to fall. A fixed rate loan (NOT "fixed for five years") is the safest. That way, your payment is always predictable. Right now there is a decent risk that rates could go higher if financing becomes hard for the government.
- We recommend that you not "buy the rate down," unless it's very cheap to do so. Here's why. Imagine you spend $5000 to get a lower rate and that saves $50 per month (this is typical). It would take 100 months (8 years plus) to recover your money. If rates dip and you don't pay up front, you can do a no-cost refinance down the road and not pay anything out of pocket. It's usually best not to spend money .... unless you can pick the bottom - but keep in mind that is something billion-dollar bond traders can't do reliably.
- Get preapproved by a reputable broker. These days, banks have not been performing well with their own preapprovals. Banks will frequently take the same loan from a broker in their "wholesale division" with less hassle and fewer delays. We can recommend a broker to help with this--and we don't take kickbacks.
- Keep in mind that specialty financing with 20%+ down is available. We do this with private money for owner-occupied and investment properties. Contact us for particulars. We also purchase seller carryback notes, at a discount.
