Savvy Mortgage Shopping

Jul 27, 2015

MoneyLife100 What’s the best advice for people who are buying or refinancing a home? Get the best mortgage. According to the Pennsylvania Institute of Certified Public Accountants (PICPA), shopping around for the best mortgage deal you can find and being informed about the right questions to ask mortgage lenders are critical things to do.

Get the Facts about Rates

The mortgage interest rate will affect your monthly payment amount, so as a general rule you will want to find the lowest rate possible. Be sure to ask, however, whether the lender is offering a fixed-rate loan or an adjustable-rate mortgage.

With a fixed rate, the interest rate will remain the same for as long as you hold the mortgage. With an adjustable-rate loan, the rate can change based on the direction of interest rates in the credit markets.

Adjustable-rate mortgages, also known as ARMs, often offer lower initial interest rates, but those rates can rise down the road. This means your monthly mortgage payment will increase. When considering ARMs, it’s important to find out how often the rate can change and by how much. If you select an ARM, CPAs advise that you first determine if you can afford the mortgage now as well as in the future at a potentially higher rate.

Understand the Terms

In addition to interest rates, there are other important details to understand about mortgages. Ask, for example, about the minimum down payment that the lender requires. The loan term is another important factor: the number of years you have to pay the loan will affect your monthly payments.

What Fees Are Involved?

Lenders usually charge fees for their mortgages. For example, most loans include points, which are typically based on a percentage of the loan amount. If, for example, you are charged two points on a $200,000 mortgage, that would amount to $4,000, or 2 percent of the loan amount. Typically, a loan with a higher interest rate will charge fewer points. There may be other expenses associated with the loan, such as broker or underwriting fees. Be sure to ask about any additional expenses, and then calculate how they will affect your up-front costs or your monthly payments.

Don’t Be Afraid to Negotiate

Once you’ve learned about all the loan details, remember you can ask for better terms on any of those factors. It’s perfectly acceptable to find out if the lender would be willing to lower the points, fees, or even the interest rate. Make sure, however, that a drop in one fee isn’t accompanied by an increase in another.

Do You Need PMI?

One of the negotiable elements in buying a home is how much money you will offer for your down payment. Many lenders require that you put down 20 percent of the home sale price as a down payment. If you’re allowed to make a smaller down payment, the lender will likely require you to buy private mortgage insurance (PMI). If you are unable to keep up your mortgage payments, this insurance covers the lender’s costs. If you need PMI to qualify for a loan, find out what the overall cost of the PMI will be and how long you will have to hold this insurance. Beginning with mortgages obtained in 2007, you can deduct the amount of mortgage insurance paid as an itemized deduction, subject to certain income limitations. Note this is only deductible if the taxpayer itemized their deductions and that it is scheduled to expire at the end of 2015.

There are many questions to be asked when you go shopping for a home mortgage. Your local CPA can help you understand them and advise you on the best mortgage options for your situation. To find a CPA in your area, visit IneedaCPA.org.     
About PICPA

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.


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