I know this might seem like a silly question, but have you ever actually looked at the word and picked it apart? MORT-GAGE. Mort, comes from Latin, which means death; and gage, also Latin, means pledge. So what does this mean? Simply put, mortgage literally translate to pledge until death. And if you make it to the payoff of your mortgage, you still don’t own your home. Don’t believe me, don’t pay your property taxes. REAL ESTATE is another word taken for granted. Real (pronounced Ray-al,) in Spanish means royal. Literally real estate is “royal property.” In our case, government property.
“So, Aaron, what can I do about this?” you ask.
Nothing. Seriously, there is very little that you can do to overcome these simple facts. Pay your mortgage and pay your taxes and you are allowed to keep your home. However, if you have not yet purchased your home and are trying to acquire a conventional home loan here are a few things to look at when determining what is best.
1. Get comparable quotes for 15 & 30 year mortgages. By asking for options, you are able to better determine what you can spend for your home. If you and your wife together make $5,000 after taxes per month and are looking at buying a home listed at $200,000. For illustrative purposes, you have perfect credit and get the 4.88% interest rate which is the current mortgage rate. Your monthly payment on principle and interest for a 30 year loan would be $1,059.02. With a 15-year mortgage, your payments would be $1,540.23 (at 4.60%). What? Lower interest for lower amortization? Yes, because the bank makes their money on the interest. The bank will stand to make over $77,000 on a 15-year loan but will walk away with…are you ready…over $180,000 on a 30-year loan! That’s almost as much as the house itself! By looking at your options you put the control into your hands…can you afford the extra $500/month?
2. Know your Credit Score. I cannot stress this enough. Contact a reputable credit reporting agency and purchase your Tri-merged credit score with report. This is a single report with all three major agencies (Experian, Equifax, and TransUnion) on it, rather than three separate reports. Bring it along and attach it to the back of number 3.
3. Negotiate with your bank. The best thing you can do is to be prepared, bring in a detailed financial statement with you when you speak to the loan officer. You can download a template for a personal financial statement from the Microsoft website. This template will work with Office 97 or newer and OpenOffice. By being prepared, when the loan officer hands you an application, you can hand him/her your financial statement. Think of this as your “report card” that you banker looks at (instead of your parents). If your debt-to-income ration is less than 2 to 1, and your credit score is on par, you might be able to negotiate a few points off your interest rate. Remember, they will not tell you what they can do for you unless you ask…and the worst they will ever say is, “No.”
4. Negotiate with the seller. Believe it or not, this can be done. You may even negotiate a personal loan for the down payment. Again, you don’t know until you ask.
5. Negotiate with the real estate agent. If you are using a real estate agent that is an Accredited Buyer’s Agent or just an agent that you trust, talk to them and ask if they would be willing to take a note on your share of their commission. The worst thing they can tell you is NO. Some might say, “This can’t be done.” But it can, they’ve just never done it before.
I’ll talk more on points 4 and 5 when I discuss Creative Financing Options, but for now, if you go in armed with your personal financial statement, and knowing what your credit is, you will be in a better position to negotiate with your banker for the best terms.
That’s all for now, but remember…the worst anyone will ever tell you is, “No!”
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- Tags: credit scores, interest rates, Mortgages
