Residential Mortgage

Residential mortgages come in all shapes and sizes.  Admittedly, these days the number and types of mortgages have shrunk.  Some see this as a problem but many of the people that have been in the industry for a long period of time see this as a good thing.

When seeking a residential mortgage people should first determine what their purpose for the loan is.  Ask yourself these questions:

When Purchasing A Home:

If you are considering buying a home, first ask yourself how much you can realistically spend on a per month basis and still maintain your current lifestyle.  Many times people think; I’ll spend a little more on a home and just change my lifestyle in order to make up for the difference.

In reality what ends up happening is that the lifestyle is changed temporarily …maybe for a year or two… but then the old spending habits come back around and BAMB!  There is financial difficulty.  Committing to changing your lifestyle in order to purchase a home is a good thing but you should put it into practice and make the lifestyle change a habit long before embarking on purchasing the home.

If you are considering buying, the next question you should ask is how much will you leave in reserve after your down payment.  Most banks only require a 2 month reserve of your payment in a savings account as a reserve.  However, it would be prudent to look at the economic environment for the industry that you are employed in.  

If you lost your job, could you find an new one in a few months?  If the answer to this question is NO, then you will want to have more than two months of reserves.  I recommend having 6 months of payments in reserve.  In most economic times this should give most people enough cushion to get through a job loss.

If you want to get prequalified for a mortgage or want to understand how much you can qualify to purchase ask the Mortgage Answer Guy!  Go to http://www.mortgageanswerguy.com/Ask_.html and ask to be contacted for a prequal interview.

When Refinancing A Home:

If you are seeking a refinance the question that most people ask is how much of an interest rate drop is needed before the refinance makes since.  That can be a loaded question but there are some general rules that anybody can use as a guideline in their decision making process.

For loan balances greater than $250,000 it makes since to refinance when the rate can be dropped by 3/4% (.75%).  For loans between $125,000 and $250,000 wait for a drop of 1% and for loans under $125,000 rates may need to drop as much as 1.25% or more.

When refinancing to lower your mortgage payment it is critical to understand how long you plan on staying in the property.  The reason for this is to make a determination of whether to use a No Closing Cost loan or whether to have the closing costs rolled into the loan by slightly increasing the loan amount.

In general, for people refinancing to lower their payment and making the determination to sell their home in three (3) years or less, a No Closing Cost loan makes since.  In these situations even a minimal reduction of 1/2% (.50%) might make since.  This assuming that the refinance is consummated in the early years of a 30-year amortized loan.

However, if it is determined that the home will be owned for a period of 5 years or more, then the lowest rate possible should be obtained and the closing cost should be rolled into the loan.  For intermediate periods of 3-5 years more complicated calculations are needed.

If you want to refinance but you are not sure what you should do the just ask the Mortgage Answer Guy!  Go to http://www.mortgageanswerguy.com/Ask_.html and ask to be contacted for a refinance interview.