Month: January 2018

If you’ve been pre-approved to buy your dream home, and are waiting for the paperwork to go through, you may be thinking about some needs and wants to make your new home just right.

You could buy a big-screen TV to go into the family room. And maybe the kitchen remodeling should be done sooner rather than later. But with all the money you’ve put into purchasing your home, you may be strapped for cash.

Your credit is good enough to enable you to buy your new home, so would it really be a problem to purchase some of your needs and, OK, a few wants, before you go to closing? Unfortunately, the answer is yes.

Here’s why: Your lender will pull your credit on the day of closing. And if new credit lines show up on your credit report, your loan file will have to go back to underwriting to be re-approved.

If you barely qualified for the loan when you signed the papers, you could have pushed your ratios out of range, and you may not qualify now.

But can you make your purchases by applying for new credit after closing? Resist the urge. Credit pulls could potentially lower your credit scores, and because you may have access to more credit than you did before you started to look for a new home, that may also have an impact.

So before you buy, talk to your mortgage professional. That big-screen TV just may not be worth the risk.

With traditional mortgages, payments are made to the lender once per month, so a 30-year mortgage would have 360 payments, while a 15-year loan would have 180.

If you are considering making biweekly mortgage payments, you would make a payment every two weeks. At the end of each year, you will have made the equivalent of 13 monthly payments.

The effect of this on a 30-year loan, for example, would be to reduce the term of the loan by approximately four years.

This sounds great, but what the bank is doing for you in allowing you to make biweekly payments is something you can also do for yourself.

For example, if you have a 30-year, $100,000 mortgage at a rate of 5%, and are making 12 payments per year, your monthly loan payment will be $536.82.

If you decide to take the biweekly option, your payments would be $268.41. However, one drawback is that you are locked into that payment for the life of the loan.

Another is that you may be charged a premium by the lender for setting up the payments in this manner. But there is another way.

To make up that extra payment a year, all you need to do is send in an additional 1/12 of your monthly payment each month, and apply it to the principal.

So, in the example, you would take the original payment of $536.82 and divide it by 12 to equal $44.74. You’ll send in this extra amount each month to apply to the principal. This also means that if there’s a month where you are experiencing financial challenges, you could skip the extra payment for that month.

The interest savings you realize over time is almost the same for the biweekly mortgage and the do-it-yourself approach (making the additional payment each month). Both methods will save you about $17,000.

Speak with your mortgage advisor to decide which is the best option for you.

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