A mortgage is typically one of the largest expenses that homeowners will have to pay in their lifetime.
However, a number of Houston home buyers (most often individuals who are buying their first home), can easily become confused with the large number of terms and conditions involved in securing a mortgage. Since this is a loan that will often be with you for more than ten years, it is extremely important to fully understand the loan agreement and the basics of your mortgage before you sign your name to the documents.
Key Terms to Know
The three most important terms for a Houston home buyer to be familiar with before entering into a mortgage are: term, rates, and cost.
The term of the mortgage refers to the amount of time that the Houston home owner will have to fully pay off the loan. This time period generally ranges between ten and thirty years. The longer the term, the lower the monthly payments. However, if you choose a shorter term, the interest rates will generally be lower.
The rate refers to the interest rate. This translates into the amount of money the lender will charge for providing you with the loan. Rates will vary depending on the Houston home buyer's credit history, the amount of the down payment, the home owner's income, and the price of the home.
Costs generally refer to the closing costs, which are incorporated into every mortgage. These include appraisals, administrative fees, and attorney fees. Some mortgage packages include a “no costs” offer but the rest of the mortgage package needs to be carefully reviewed to determine what package works best for you.
When it comes to financing a home, you want the best deal available to you. The good news is that there are many different options.
Finding Good Mortgage Rates in the Houston Area
In the Houston area, I can recommend an number of excellent banks to a mortgage brokers. Personally, I think that one of the best things you can do is find a qualified mortgage broker who is willing to work with you and help you through this process.
If you are shopping for rates online, you may be interested in search through LowerMyBills (see below) as they have an excellent platform to help you find good rates.
Floating vs Fixed Interest Rates
Adjustable rate mortgages may seem like the perfect solution for some and a huge risk for others. This is because with adjustable rate mortgages, the monthly payment of the mortgage is determined by the interest rates for that month.
While it makes for a varying monthly payment, these can be a great fit for first-time homeowners or for those that are only looking to live in their home for a short time and then sell. When the mortgage is at an adjustable rate, it’s important to continuously review the interest rates so that you can switch into a fixed rate mortgage by refinancing your home. This will save money for the long-term.
Pre-Payment Option
Paying off a mortgage early can be a great feeling and there are a few simple steps to do it. The first is to pay a little bit extra on the principle of the loan every month. As little as twenty extra dollars a month can add up in a hurry and will considerably shorten the term of the loan.
The second step that can be taken is to make an extra payment in full once a year. This will also lessen the loan’s term by a few years.
The third is to put any extra money available back into the home. This is either by giving it to the lender to pay on the principle or by making home improvements. The biggest areas that are looked at by buyers are the kitchen and the bathroom so to boost your home’s resale value, start with these homes first.
If you are interested in prepaying your loan, you need to carefully review your mortgage agreement. Many companies will have a fee for prepaying a loan and it’s usually a predetermined amount, or a percentage on the amount of loan that has yet to be paid. These prepayment fees are most commonly found in high-interest and high-risk loans.
Interest Only Mortgages
An interest only mortgage provides a homeowner with the opportunity to only pay the interest of the home for the first few years of repaying the loan.
This makes the payments significantly smaller and the principal that is not being paid will be distributed throughout the rest of the loan. When first looking at homes to buy, be sure to calculate exactly what you can afford by determining an amount that includes both interest and the principle so you are not in a bad position when the interest only period ends.
When taking out one of these loans, it’s important to have the loan agreement stipulate when the principal will be paid and to also pay for as much of the principal when you are able to.
Key Tip: Protect Your Credit Rating 6-12 Months Before Buying a Home!
In addition, if you're planning on buying a Houston home and plan on getting a mortgage, it's extremely important to ensure that you have good credit. I've had a number of clients who have paid significantly more in interest rates because of a few simple missed payments for credit card and utility bills. Get your credit report and credit score and make sure that you're safe-guarding your credit in advance.
