Many homeowners are not familiar with how mortgages work; as a result many people take out bad loans. These mortgages have high interest rates and unnecessary fees that result in the homeowner paying too much for financing. If you have bad credit you must do your homework and research mortgage lenders to find a loan with favorable terms. Here are tips to help you find a mortgage loan with terms that work in your favor.
What is the new interest rate?
The interest rate you settle on is extremely important as it is one of the factors that determine your monthly payment amount. Interest range anywhere from 4 to 10 percent depending on the type of loan you choose and how it is structured. If you have poor credit you can expect to pay more.
Bad credit does not have to mean high interest rates. It is extremely important to do your homework and research mortgage lenders. You should also spend time cleaning up your credit prior to applying for a new mortgage. Review your credit records from the three credit agencies for errors; also, make sure you are making all of your payments on time.
What is the best term length?
You have many options when it comes to your mortgage term length. If your goal is to build equity in your home as quickly as possible, choose a 15 or 20-year mortgage loan. You will have higher monthly payments; however, your interest rate will be slightly lower. The traditional mortgage term length is for thirty years. Mortgage lenders now offer forty and fifty year mortgages; this type of mortgage could help you if you live in certain areas of the country with high housing costs.
You will have to pay closing costs.
Filling out the paperwork for a new
mortgage is the easy part. Before your new mortgage is finalized you will have
to close on the loan and pay closing costs. The fees involved at the closing
table vary from one lender to the next so it pays to compare and negotiate for
lower lender fees. Plan on paying several thousand dollars to cover the expense
of your home appraisal, title search, origination points, inspection, and any
miscellaneous lender fees.
If you are unable to pay these expenses out-of-pocket there are mortgage
lenders willing to finance closing costs; however, you will pay a premium for
this added convenience. You can learn more about your mortgage options,
including common mistakes to avoid, by registering for a free mortgage