Ace Your Mortgage

Real Estate

If you are in the market for a new home - or looking to refinance your current mortgage - then here are 4 tips to ace your mortgage in 2017:

1. Live within your means

Buying a home is an exciting life event, and your home is likely your largest asset.

However, when purchasing a new home, make sure that you are not spending your life savings.

When you own a home, there are plenty of other expenses for which you need to account: utilities, home maintenance, home improvements, insurance and other costs. In addition to your home, you have other life costs.

Remember: while your home can appreciate in value over time, your home is not a liquid asset - meaning it cannot easily be converted to cash. You can't decide to buy your home in the morning and sell it in the afternoon.

Keep this in mind when you choose your loan amount and interest rate.

Take Action: For a good night sleep in your new home, have a cash cushion in your savings account as well as an emergency fund.

 

2. Consider the best loan options for your financial situation

When it comes to a new mortgage or refinancing your current mortgage, you have several options (among others) from which to choose.

Choose the loan option that makes most sense for your personal financial situation.

There is no universal rule for every homeowner.

Everyone's financial profile is unique. That means that your financial situation is specific to you.

For example, a married couple with children may prefer a 30-year fixed mortgage because they expect to be in the same home for the long-term, and want the peace of mind to pay the same interest rate (regardless of interest rate changes).

A newlywed couple without children may prefer a shorter-term, adjustable-rate mortgage - which initially has a lower, fixed interest rate - because they expect to sell their home (and buy a larger one to make room for their children) before the interest rate converts to a variable interest rate.

Take Action: Don't necessarily choose what your neighbor does or what your grandparents did. You need to decide what is best for your life circumstances and financial goals.

 

3. Make sure your credit report is accurate

When you apply to borrow or refinance a mortgage, expect that your credit report will be checked.

Your lender will review, among other factors, your financial history, income and other debt obligations.

If you have a lower credit score or poor financial track record, you can expect to pay a higher interest rate on your mortgage because lenders view you as a riskier borrower.

The Federal Trade Commission found that 5% of consumers had one or more errors on their credit report.

There are three major credit bureaus: Experian, Equifax and TransUnion.

Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower.

Under federal law, you are entitled to view your credit report every 12 months from each credit bureau. Since each credit bureau may have different information about your credit history, your credit score may vary across the three lenders.

For a free copy of your credit report, you can visit Annualcreditreport.com.
If you find an error, you should report it to the credit bureau immediately so that it can be corrected. Your credit score will not improve over night, but the sooner you take action, the better.

Take action: Want to boost your credit score? Check out five ways improve your your credit score.

 

4. Evaluate all your debt before racing to pay off your mortgage

It may sound like common sense to pay off your debt as quickly as possible.

However, focus less on the type of debt and more on the underlying loan terms.

Like student loans, always pay at least your minimum mortgage payment.

Don’t skip any mortgage payments because the penalties can be severe.

Start saving for retirement as early as financially possible by contributing to your 401(k). Benefit from the power of compounding. Take advantage of your company match.

Should you apply any excess funds to pay down your mortgage or invest more in your retirement?

Compare the interest rate on your mortgage to the returns you can earn by investing your money.

Given current interest rates and the historical return of the stock market, for example, you can typically earn a higher return by investing in a retirement account such as an IRA or 401(k) than paying off your mortgage with additional funds.

Take Action: Look at your entire financial picture. Balance your debt obligations with your investment goals.