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Buyers: Educate Yourself

Posted: November 6, 2013 2:00 a.m.
Updated: November 6, 2013 2:00 a.m.

Patti Handy

 

Do you remember riding Mr. Toad’s Wild Ride in Disneyland?

If so, the last few months may seem familiar. What a ride the stock market and mortgage market have been on!

It is human nature to desire security and stability, so the recent market activity has made many people very uncomfortable. Although we can’t control what happens in the market, we can control how we prepare, and respond to those events.

We’ve heard time and time again, knowledge is power. I take that one step further and say, not only is knowledge powerful, but taking action on that knowledge is crucial. For without taking some type of action on what you know, you will not change your circumstances.

This holds true for most situations we face.

So, when it comes time to purchase or refinance a home, what do you need to know?

For starters, you must know what options you have. Educate yourself on the loan products available to you and which one makes the most sense, given your circumstance.

A good mortgage advisor will ask you many key questions before making a recommendation on which loan type is best for your situation.

With rates at historical lows, more times than not, a traditional 30-year fixed mortgage will be most attractive.

But, if you plan on moving out of the area in a few years (maybe retiring) or plan on refinancing after some credit cleanup is complete, you may be better suited to explore an adjustable rate mortgage (ARM).

Ask yourself some key questions: How long do I plan on staying in this home? If I plan on retiring in this home, how many years before retirement?

If you plan on retiring in the home, perhaps it makes sense to explore a 15 year amortization versus a 30 year, as having the home paid off at retirement is ideal.

Have a trusted mortgage advisor run the numbers and compare to your budget and timing.

In addition to exploring the loan products available, you should know your FICO score. The better the score, the better the interest rate available to you.

If you’ve had some issues arise and need help with repairing credit, have a conversation with a mortgage advisor.

Oftentimes, some simple guidance can make all the difference in the world. With an improved credit score, you can potentially save thousands of dollars over time. It’s worth a simple phone call.

A common question I am asked is, “What is the minimum down payment I need to buy a house?”

Other than VA (Veterans) and USDA (rural areas), 100 percent financing is not available.

FHA will allow for a 3 ½ percent down payment, which is a great option. However, there have been some recent changes to the FHA product that make it a bit less desirable.

In addition, if you plan on purchasing a condo, the condo association must be FHA approved. Unfortunately, there are less and less condo associations that have FHA approval in the SCV, so be sure and have your realtor double check if you plan on using a FHA product.

If you have 5 percent down payment, we can go with conventional financing, which will give you greater choices.

Again, having a conversation with a mortgage professional before you go house hunting is imperative. I know I sound like a broken record, but just like having a good financial planner, C.P.A or attorney, having a mortgage advisor on your team will help with your overall financial well-being.

Patti Handy is a mortgage professional and expert in the California market.

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