4 Essential Points From Mortgages for Dummies

By:
JR Hevron - MortgageLoan.com
Mortgages for Dummies is critical reading for anyone looking to purchase a home. Use these four essential points as inspiration to read the book.
 
You’ve probably seen the For Dummies series of reference books and may have wondered if they’re really all that useful. After all, who needs a book to teach them how to operate their iPod or carve a turkey?
 
While some snickering at the more basic titles in the series is justifiable, some of the volumes are extremely useful. Case in point is Mortgages for Dummies written by personal finance expert Eric Tyson and real estate industry veteran Ray Brown.
These guys are the real deal and actually have plenty of useful information to share with readers. If you are just starting to look for a house—or even if you aren’t quite there yet—the book has essential, basic information that will help you to take a smart approach towards the whole process.
 
While reading an entire book on mortgages might not be your idea of a good time, the knowledge that you gain can literally save you tens of thousands of dollars (if not more) over the life of your mortgage.
 
Here are four important points from the book to give you a taste of what it has to offer:
 
1) Most people need to save at least 10% of their pre-tax income to reach their financial goals.
A big part of preparing to purchase a house is getting your financial house in order. That doesn’t just mean saving money, it means taking stock of your finances and understanding exactly how much money comes in every month and exactly where it goes. Before you can understand exactly what you can afford to pay on a mortgage and how much you can afford for a down payment, you’ll need to figure this out. One general rule of thumb is that you should be saving at least at least 10% of your pre-taxable income if you want to achieve your financial goals. If you’re not doing this now, you should figure out how to make it happen before you attempt to get a mortgage.
 
2) Plan ahead for monthly costs aside from your mortgage and do your own computations.
When you are calculating whether or not you can afford a particular house, the mortgage payments are only part of the equation. You’ll need to pay insurance, property taxes, and maintenance among other things. For the maintenance expenses, be sure to allocate at least 1% of the purchase price of the home per year for those costs. Another tip when calculating the monthly costs on a potential home is to double check the numbers on the listing. For example, oftentimes the figures for the property taxes are incorrect because they are based on out of date property values.
 
3) If you can’t put 20% down, save money on PMI with an 80-10-10 loan
The general rule is that if you can’t put down at least 20% in cash for a down payment, you have to pay each month for private mortgage insurance (PMI). This, of course, increases the cost of home ownership making it harder to buy a home. If you don’t have the funds to make a straightforward deal, always look to creative financing options before paying penalties. In this case, the homebuyer can take advantage of something called 80-10-10 financing. Here, the lender provides an 80% first mortgage, a 10% second mortgage comes from the seller or another lender, and then the homeowner just has to come up with a 10% down payment.
 
4) Buyer beware when shopping for a mortgage online.
Shopping for a mortgage online has its place, but it requires a bit of wariness and caution on the part of the searcher. For example, while mortgage calculators are convenient they aren’t always accurate. Often, they just use your overall income and interest rate to figure out what you can afford. A real estimate of what you can pay should take into account a more complete picture of your finances including your debt, your savings, travel plans, etc..
 
Before doing business with an online lender, be sure to review their security and confidentiality policies. Only do business with lenders who don’t sell or share your information with any outside organizations except for the purpose of verifying your creditworthiness. If you aren’t comfortable applying for a loan online, talk to the lender and see if they will let you close the deal in their office.
 
Lastly, start your search online, but remember that you can shop offline as well. Mortgage lending is still largely a locally driven business that varies based on the whims of the local market. Negotiate with someone local in person and give him or her the chance to match online prices and you may be surprised.
 
Nobody is going to hold your hand when it comes to your getting the best deal on a mortgage. Your best defense is to educate yourself on the finer points of the mortgage process before you start. Books like Mortgages for Dummies are one of the least painful ways to get started.  

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