The mortgage process is often made much more confusing and complicated than it has to. One of the keys to a successful mortgage is knowing what you want out of it before you even apply. It was not so long ago that the 30 year fixed loan was the loan of choice for 99% of all buyers. More recently, however, there was a trend to adjustable rate loans, interest only and even an option where you can pick between three payment options every month. In the end, somewhere in the middle is probably the best option, but it all starts with identifying what you want out of the mortgage.
Everything is connected when you apply for a loan. Your credit score can dictate your down payment which can be impacted by your loan term which is based on your debt-to -income ratio. All of this may sound confusing, but if you take it one step at a time it really isn’t. Start with determining what is the most important thing for you in the loan. This can be anything from looking for the lowest possible monthly payment to paying it off as quickly as possible to just getting approved for a loan. Once you know what your goals are you can move forward with specific programs.
Interest only loans got a bad rap by many borrowers who weren’t ready for them. For borrowers who knew what they were going to take home every week, this option was misused. The intent was to be used by a self-employed borrower who has fluctuating income and can pay more or less in any given month. If your loan goal is to only keep the property for less than five years, the interest only option allows you to keep your payments down and not waste money on loan payments you won’t recoup for years. This option is not available in every program, but it may be in many more programs than you may realize.
If your goal is to pay the property off ASAP, you can either take a shorter term (10-15 years) or commit to making an extra principal payment every year. In most cases, taking a longer term and making the extra payment makes more sense than committing to a much higher payment every month. You can always put a large chunk towards the principal down the road to accelerate the payoff. Even if you just make one extra principal payment a year you would knock seven years off the mortgage.
If you are looking to put as little money down as possible, there may be an option for you depending on the credit score and type of property. The bottom line is that if you don’t know what you want, it will be difficult for any lender or broker to find the program that best suits your needs. Before your credit is pulled and you start the mortgage process, you should take the time and come up with a short and long term plan for exactly what you want out of the property and out of your mortgage. Things can change along the way, but by finding the right loan it can have a great impact on your business.
