Other than different interest rates, most people think that one mortgage is the same as any other. In truth, there are dozens of different mortgage loan options, each with their own special provisions to help people in different phases of life or people in specific situations.
When life changes, your home loan needs may change, too. From first-time home buyer to eventually downsizing as an empty-nester, there’s a perfect mortgage for every phase of life.
The best way to make sure you’ve got the right mortgage for your needs right now is to talk with your local lender about a mortgage check-up. Consider the following advice:
First-Time Home Buyers
First-time homebuyers face unique challenges, including:
- Limited credit history
- Potentially less-than-ideal credit scores
- Difficulty accumulating a sufficient down payment
- Inexperience with the process
We typically recommend you meet with a mortgage lender 6-12 months prior to your intended “buying window.” This timeline enables buyers to identify any barriers and implement changes without delaying the process. For example, we will:
- Pull your credit report. Pulling your credit report can help uncover any unknown credit concerns or mistakes. Perhaps a lien was never removed after being paid off or credit from someone with your same or similar name somehow ended up on your report. Pulling your credit report early in the process gives you time to make corrections.
- Review your credit score. Your credit score can directly affect your interest rate and fees, as well as whether you can get approved for any loan to begin with. The published interest rates reflect rates offered under ideal credit conditions. If your credit score is less-than-ideal, we can go over the report with you and offer guidance and tips for improving your score. For example, some younger buyers have not used much credit so there isn’t enough credit history to evaluate your ability to manage credit. Or, we may recommend you close any unused credit cards or accounts.
- Research your options for funding a down payment. While most mortgage loans don’t require a 20 percent down payment, that’s the magic number that enables you to avoid private mortgage insurance (PMI), to choose whether or not to escrow, and to get preferential pricing. Many people don’t realize there may be other sources of funding available to them when saving for a down payment. For instance, if your income is under a certain threshold, you may qualify for down payment assistance. There are also many loan programs that require little-to-no money down. In addition to these options, we can lead you through a discussion about how a “gift” of money from a loved one toward your down payment might work. Or, you might consider selling something to raise cash for the last bit of down payment.
- Get you pre-approved for a mortgage loan. Many people confuse pre-qualifying and pre-approval. Pre-qualifying involves a quick review of your financial picture and can give you a range of what you may be able to afford. However, getting pre-approved for a loan serves as a trial run for the real purchase event and can help uncover and resolve any issues that could affect the process later on. Once you are pre-approved, you can move confidently forward in the home-buying process.
Give yourself time to react to poor credit, if necessary, so we can make a plan for improving your credit quickly to avoid delay.
Moving Up to Something Bigger OR Downsizing for Empty-Nesters
From a timing standpoint, its’ good to contact your lender about 6 months before you anticipate a change. Many home buyers in this category don’t want to worry about selling their current home prior to closing on their new home. We can explore the need for a bridge loan if two mortgages might be necessary at some point. We will also discuss how the overall process works and go through steps 1-4 above in this scenario, as well.
Refinancing Your Existing Mortgage
With rates currently so low, some people monitor interest rates regularly to take advantage of a dip in the published rates. However, it’s probably more common for people to go into autopilot mode after setting up their home loan. A mortgage shouldn’t be a one-time event and then get ignored. We recommend two times, in particular, when people should review their mortgage status:
- Whenever you experience a life change, such as when you welcome a new child into your growing family, when a child goes off to college or moves into their own apartment, during a divorce, or when approaching retirement.
- Annually for a mortgage check-up. Just like meeting with a financial advisor regularly to make sure your investments are on track for your current stage of life, we recommend you meet annually with your mortgage lender for a quick review of options. This check-up can sometimes uncover lower rates, identify different loan programs better suited to your current situation, or reveal it’s time to remove your PMI.
The general rule of thumb is to refinance if you intend to stay in the home long enough to recover your expenses from originating a new loan. Generally, you should be able to recover the costs of refinancing within 12-18 months.
A Reverse Mortgage
A reverse mortgage can be a powerful tool in providing financial stability as we grow older. The key is to work with a trusted lender who will first determine if a reverse mortgage is appropriate in your situation and will then work with you and your family to answer any questions and help you understand the process and result. By regulation, there are age restrictions and other criteria you must meet to qualify for a reverse mortgage loan. However, in the right circumstances, a reverse mortgage can provide financial relief for someone with a strong desire to stay in their home on a limited or fixed income. While not every bank will offer a reverse mortgage, we encourage you to work with someone locally if interested in pursuing this option rather than calling an 800 number. State Bank of Cross Plains will work with you to address your specific situation.
Consider an Annual Mortgage Check-Up
In truth, you can get a mortgage loan almost anywhere. A lot of lenders will listen to your concerns and answer your questions. We encourage you to find a lender who also asks questions to better understand your life, your goals, and how this loan will fit into your overall financial picture.
A home loan is not just something to think about when you first buy a home. Consider adding a mortgage check-up to your annual financial review because when life changes, your home loan needs may change, too.