Mortgage 101: 5 Factors to Consider

8/1/2023 12:00:00 PM

Personal Insights Financial Education June 2023_11 Mortgage

 1. What Are Mortgage Points & Should I Pay Them?

Mortgage points are fees lenders charge in exchange for a lower interest rate. Commonly called discount points, each point is equal to 1% of the loan amount.

Your mortgage lender can help you figure out whether it’s worth paying additional discount points to obtain a lower interest rate.

2. Which Home Loan Is Right for Me?

With our wide variety of home loan programs, there is something for nearly every situation – and in some cases, more than one program can be used for the same mortgage. This is just one more reason it pays to work with a local lender instead of an online mortgage company.

Here are just a few examples of the variety of mortgage options available:

  • Conforming loans
  • Non-conforming loans
  • Construction lending

The Bell Moving Forward Advantage Program*, eligible for minority borrowers only, might be just what you need to make your dream of homeownership come true. This loan is available in certain markets and offers a lower credit score minimum qualification.

Because of the wide variety of home loan options available, it’s helpful to meet with a mortgage lender to talk about which programs might work best for you.

*Subject to credit approval. Primary residences only. Income restrictions apply. Available for borrowers identifying as a minority as defined by regulatory designations listed on the initial loan application. Must not own other property. 620 minimum credit score. Available in the following markets: AZ,CO, FL, KS, MO, MN, ND, NM, TN & WI. Program guidelines are subject to change without notice. Other restrictions apply.

3. Which Mortgage Term Is Best?

Your mortgage term is the amount of time you have to repay your loan. Mortgages often come in 15-, 20-, or 30-year terms. Choosing the best term depends on your financial goals.

Shorter terms might come with a lower interest rate and will help you pay off your home sooner; however, your monthly payment will be higher. Longer terms usually have a higher interest rate and take longer to pay off, but your monthly payment will be lower.

Remember, if your financial goals change and you want to change your term, you can explore mortgage refinance with your lender. (When you refinance, you also usually have to pay refinancing costs, and your interest rate may change.)

4. What Is Mortgage Insurance & Will I Need It?

In some circumstances – such as if you make a down payment of less than 20% – you may need to pay mortgage insurance. This is not the same thing as homeowners insurance, which covers financial loss to your home and belongings should disaster strike.

Mortgage insurance lowers a lender’s risk and is included in your monthly mortgage payment. (In some cases, borrowers will need to pay a lump sum initial premium at closing in addition to the monthly payment.)

5. How Much Should I Save for Down Payment & Closing Costs?

It’s a common misconception that you have to put 20% down on your mortgage. With more than 20% down, you don’t need to add mortgage insurance to your monthly payment. And a larger down payment reduces your monthly payments. But there are programs available that allow for zero money down.

Closing costs – the fees charged when you take out a home loan – vary greatly, but they average between 2% and 5% of the home’s purchase price. On a $200,000 home, that’s roughly $4,000 to $10,000.

That’s a chunk of change that can seem prohibitive, especially if you’re already burdened with car payments and student loan debt. But it doesn’t have to keep you from owning a home. Down payment assistance programs can help first-time homebuyers.

You can sometimes negotiate to have the home seller pay your closing costs. (You may need to pay full asking price or more than the asking price to make this happen.)

Once you have reviewed your credit and program options with your lender, you will have a better idea of how ready you really are. It’s okay if you need a few more months to save or resolve any credit issues.

Get started today!