Most buyers have already been playing with mortgage calculators and know about what their payment will be on the new house based on advertised rates.
But will you actually qualify for that advertised rate?
The interest rate a buyer gets depends on many things out of their control: their credit score, type of mortgage loan for which they qualify, the amount of the down payment, etc.
Lenders know that most Buyers focus on the interest rate when choosing a lender, never asking about the fees. Therefore, they post the lowest possible to attract customers; after all, that is their business. What a disappointment when I have to explain that they may not qualify for that unbelievably low rate. There’s more to it.
Consider lender fees, not just interest rate.
Behind every rate are fees, and they vary from lender to lender. Ask each lender you interview what costs are associated with the interest rate quoted.
Should you Pay Points?
Did you know it is possible to buy down an interest rate by paying “points?” Here is a simple example of how points work:
Let’s say your mortgage amount is $200,000.
The advertised interest rate is 3.75% with zero “points.”
Or you can buy the lower rate of 3.50% by paying one “point.”
One point is one percent (1%) of the mortgage amount. In this case, 1 point equals $2,000.
So, for $2,000 you can buy the 3.75% rate down to 3.50%.
Not a bad idea when you consider the interest savings over 30 years. But since at this writing, mortgage interest is still deductible, it may make more sense to pay the higher rate and use the $2,000. as additional down payment, or to pay off debt that might raise your credit score and get you a better rate anyway. A trusted Lender is the one to help guide you in this decision.
We wrote about Choosing a Buyer’s Agent, and if you followed my advice, then you’ve landed a great one. They will know the best lenders in town. Ask your agent for a lender referral, then personally interview the lender for advice and obtain a written pre-approval before you start looking for a home.
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