How long you will be in the loan is not only affected by the tenure that you own the home,but also the probability of seeking a refinance at some point in the future.

How long you will be in the loan is not only affected by the tenure that you own the home,but also the probability of seeking a refinance at some point in the future.  

As a general rule of thumb, you will need to be able to recuperate the total cost of the points in a period of time that is less than the amount of time you will need to borrow the money. Here’s an example. Let’s say you are going to borrow $300,000 for your mortgage, and choose to pay one point, which equates to an initial up front cost of $3,000.

If paying one point up front saves you $100 a month, this means it will take you 30 months or 2.5 years, to recuperate the cost of the point that you paid. 

If you refinance the home anytime before that 30-month mark, ordecide to sell the home, you will have effectively wasted money. However, if you keep that loan for longer than a 30-month period of time, it is a prudent financial move. When deciding whether or not you should pay points, take into consideration where interest rates are at when you seek financing, and compare that to historical market trends. When interest rates are at historical lows, it makes much more sense to pay points, especially if you think you will live in the property for an extended period of time. Historically low rates, combined with the fact that you know you do not intend to move would indicate you will have longevity in the loan. It is unlikely rates will go down, giving you incentive to refinance. Rates are cyclical. When interest rates are off of their historical lows, and higher than they generally are, we know that there is a strong likelihood rates will eventually come down. 

This is certainly no time to pay points. The chances of refinancing at some point in the future are extremely high, and therefore, you would not need to be in this loan for a long period of time. Credit Scoring Your credit score is a major factor that will be considered by the lender when they review your loan application. They want to know what your credit history is, and whether you have the ability to pay back the loan you are requesting. In short, good credit translates into lower rates and/or fees for the home buyer and less risk to the lender. Credit scores can range between a low score of 300 and a high of 850. The higher the client’s score is, the less likely they are to default on their loan. We will run a credit report to determine what your credit score is, and if necessary, we can point out some simple ways to help you improve your credit score without enlisting the help of a credit repair service. 

Once you complete a loan application and enter into the loan process, you should not run up your charge cards or make any major purchases! You also should not apply for any other type of new credit, as this could negatively impact your credit scores. Today, many programs limit your borrowing ability if you have a low credit score. If you do have a low credit score you may still be able to obtain financing, just be prepared for both a higher interest rate and/or higher down payment requirements. While you may not get the interest rate you had hoped for, it is an opportunity to start building up your credit again. Once you begin making mortgage payments on time and in full, your credit standing will improve and we can seek to refinance you at a lower rate as soon as the opportunity arises. Sometimes we may determine there is a need to refer you to a credit repair specialist. In some cases, borrowers have seen significant improvement in their credit scores in as little as 3 to 6 months, allowing them to qualify for the mortgage they desire. GSF Mortgage offers a free 90day credit monitoring program to all of its cents. Junk Fees A junk fee is a derogatory term defining extra fees, which are charged as dollar figure rather than a percentage of the loan amount. It is important to know that you may be able to negotiate these fees down or have them removed if they have not been properly disclosed to you. The lender is required to provide you with a Good Faith Estimate disclosing their fees within three days of your application.Fees associated with the following are NOT considered junk fees: • appraisal • credit report • escrow or attorney • title search • title insurance • document recording • notary • tax service • flood certification • title • endorsements • stamps on the mortgage or deed • survey. These are legitimate fees charged by third parties and are necessary to complete the transaction. Distressed Property Distressed property can provide you an opportunity to save money on your home purchase. Opportunities will present themselves for some time in this area as the economic crisis continues to weigh on homeowners.