If you are reading this because you aren't sure.....escrow.
When asked if you'd like to escrow your taxes and insurance, you are being asked if you would like to pay your property taxes and home owners insurance monthly with your mortgage payment (which consists of principle and interest for your home loan).
Typically, your taxes and insurance are due every 6 months (at least mine are). I would rather know that the money is going to be in an account waiting for the bill to come and get paid without me having to put forth any effort (I like my finances to be automatic: direct deposit, 10% to my 401k, money pulled from my checking to my savings monthly, dividends re-invested into my portfolio, mortgage payments pulled from my checking, auto-pays on bills, etc). I watch my money like a hawk via www.mint.com, but everything is automatic.
If your mortgage principle and interest payment are $1,300, your property taxes are $3,000 annually, and home owners insurance is $1200 annually, then your total monthly PITI (principle, interest, taxes, insurance) payment will be $1,650 because your taxes and insurance will be divided into monthly payments and added to your mortgage. When the bills are due, the mortgage company will pay them.
If you decide not to escrow, understand that you will receive some hefty bills during the year that you may not be fully prepared for. My parents don't escrow because they want to make interest on their money instead of allowing the mortgage company to. I, however, don't mind missing out on that interest and consider it a cost of making my life easier.
Also, often times you can get a little discount on the fees for your mortgage because the bank feels safer knowing that the taxes and insurance are being paid on-time.
Your call though.
Friday, February 27, 2009
Thursday, February 26, 2009
Shopping for a Mortgage....do's and don'ts
Getting a mortgage, whether it is a refinance or home loan purchase, is actually very simple. It may take a little time, but there are very easy steps in doing this. I say this process is simple because I have sold over 1,000 mortgages to consumers and you may only purchase a few in your lifetime (and that first one may be coming up soon), but I understand where you are at right now.
Some basic do's and don'ts:
DO's
1. DO YOUR RESEARCH! (well, your reading this you you obviously have the first DO mastered....congrats!)
2. Think of shopping for a home loan is the same as shopping for a TV
- know the basics. Rate, fees, program (fixed rate or adjustable), monthly payment (Principle, Interest, Taxes, Insurance), pre-payment penalty (if any, it's rare now); just like knowing the size, cost, brand, type (ie High-Definition).
3. Gather the documents/information you are going to need. You can't know what you qualify for if you don't know the information that determines qualification.
- W2s for the past 2 years (possibly tax returns if you have non-W2 income), most recent 30 days worth of paystubs, purchase contract (if you are buying), Home owners insurance statement.
4. Talk to at least 4 mortgage bankers on the same day.
- Rates/fees change daily based on many factors, so you will want to compare apples to apples by getting quotes for the same program (30 yr fixed, etc). See below for some details on how rates/fees work
5. When you are ready to move forward with someone, move forward and send in all of the paperwork that they ask for right away.
6. Ask if you can get a confirmation that your loan rate was locked (sometimes they can even guarantee your fees, most will only give you a Goof Faith Estimate)
Don'ts
1. Don't try and time your decision with the markets
- rates/fees will go up and go down from day-to-day. I have seen people wait and end up with higher rates and costs because the rates never came back down. If it makes financial sense for your situation, move forward.
2. Don't compare offers from banks on different days.
3. Don't be afraid to give your personal information to get an accurate quote (unless you have a bad feeling about the person....you don't want to do business with them anyways)
4. DON'T let the banker talk you into a loan you don't understand
5. Don't pay off your car with a refinance
- You would be financing a car for 30 years instead of 5. It's A LOT more expensive over the life of the loan even thought it looks a lot cheaper monthly.
(ignore the actual numbers, but pay attention to the rate/fee relationship)
Day 1:
4.5% - $6,000
4.75% -$4,000
5.25% - $2,500
5.375% - $2,300
5.5% - $2,000
6.0% - $0
Day 2:
4.75% - $6,000
5.0% -$4,000
5.25% - $2,800
5.5% - $2,300
5.75% - $2,000
6.125% - $0
Typically 0 points has a cost of $2,000-$3,000. When costs are higher, you are either paying the salesman more in commissions or your getting a better rate (this is why you should speak with 4 bankers to compare rates AND fees)
www.lendingtree.com is a great site to shop, but be aware that you will probably receive a lot of phone calls and emails....but worth it in most cases.
Some basic do's and don'ts:
DO's
1. DO YOUR RESEARCH! (well, your reading this you you obviously have the first DO mastered....congrats!)
2. Think of shopping for a home loan is the same as shopping for a TV
- know the basics. Rate, fees, program (fixed rate or adjustable), monthly payment (Principle, Interest, Taxes, Insurance), pre-payment penalty (if any, it's rare now); just like knowing the size, cost, brand, type (ie High-Definition).
3. Gather the documents/information you are going to need. You can't know what you qualify for if you don't know the information that determines qualification.
- W2s for the past 2 years (possibly tax returns if you have non-W2 income), most recent 30 days worth of paystubs, purchase contract (if you are buying), Home owners insurance statement.
4. Talk to at least 4 mortgage bankers on the same day.
- Rates/fees change daily based on many factors, so you will want to compare apples to apples by getting quotes for the same program (30 yr fixed, etc). See below for some details on how rates/fees work
5. When you are ready to move forward with someone, move forward and send in all of the paperwork that they ask for right away.
6. Ask if you can get a confirmation that your loan rate was locked (sometimes they can even guarantee your fees, most will only give you a Goof Faith Estimate)
Don'ts
1. Don't try and time your decision with the markets
- rates/fees will go up and go down from day-to-day. I have seen people wait and end up with higher rates and costs because the rates never came back down. If it makes financial sense for your situation, move forward.
2. Don't compare offers from banks on different days.
3. Don't be afraid to give your personal information to get an accurate quote (unless you have a bad feeling about the person....you don't want to do business with them anyways)
4. DON'T let the banker talk you into a loan you don't understand
5. Don't pay off your car with a refinance
- You would be financing a car for 30 years instead of 5. It's A LOT more expensive over the life of the loan even thought it looks a lot cheaper monthly.
(ignore the actual numbers, but pay attention to the rate/fee relationship)
Day 1:
4.5% - $6,000
4.75% -$4,000
5.25% - $2,500
5.375% - $2,300
5.5% - $2,000
6.0% - $0
Day 2:
4.75% - $6,000
5.0% -$4,000
5.25% - $2,800
5.5% - $2,300
5.75% - $2,000
6.125% - $0
Typically 0 points has a cost of $2,000-$3,000. When costs are higher, you are either paying the salesman more in commissions or your getting a better rate (this is why you should speak with 4 bankers to compare rates AND fees)
www.lendingtree.com is a great site to shop, but be aware that you will probably receive a lot of phone calls and emails....but worth it in most cases.
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