2016 New Year's Resolutions

Is one of your 2016 New Year's resolutions is to purchase a home? Have you wanted to buy a home but are hesitant to "take the plunge"? Owning a home can provide several benefits, and even borrowers with below-average credit can make 2016 the year they buy a house. NewFED can help many borrowers achieve their goal, and there are ways you can save money while fulfilling your New Year's resolution.

The Importance of Home Ownership

Home ownership has many benefits, starting with providing a stable location where you and your family can enjoy memories and become part of the neighborhood. In addition, owning your home offers the following benefits:

Peace of mind/security – home ownership provides a level of security for years to come.
Added borrowing power – as you build equity, your home becomes an asset that you can leverage if you need money for big expenses such as a child's education, a vacation, or unexpected medical costs.
Tax considerations – you're eligible for tax deductions and other filing advantages each year you own the home.
Property flexibility – when you own the property, you have control over repairs, improvements, additions, and other modifications.

Don't Let Poor Credit Prevent Home Ownership

Borrowers with less-than-perfect credit can still achieve home ownership. While it may cost a bit more to purchase the home, a mortgage loan approval means you meet a lending threshold, which can lead to greater borrowing power down the road.  Borrowers with below-average credit should consider the following:

There are loan products, such as an FHA mortgage, that provide lenders with a government guarantee in the event of a loan default. These loans enable poor credit borrowers to purchase a home with a lower interest rate and a lower down payment than would typically be offered. These loan types also improve your eligibility to get approved.
While they're not easily approved, some borrowers with fair credit histories or worse may be eligible for an adjustable rate loan, which often start out with lower payments that increase over time. These loans may allow you to improve your financial situation during the first few years of ownership.
As you make payments on time, you're credit score will improve. Keep in mind that you can lower your interest rate following a period of timely payments by applying for a refinance loan.

Home Purchase Loan Options

Depending on the type of property you're interested in and your credit status, you may have choices for mortgage loan products. NewFED has several mortgage loan options:

Fixed rate
Adjustable rate
Jumbo
Federal Housing Administration (FHA)
Veteran's Administration (VA)

Our knowledgeable, experienced loan officers can help guide you to the best loan for your mortgage needs.

Tips For Saving On Your Mortgage Loan

Although a mortgage loan will often be the largest debt obligation a person has in life, there are ways to reduce the cost of a home purchase.

Assume an existing mortgage. You may have the option of assuming an existing mortgage. Instead of applying for a new mortgage, you take over the loan that the previous owners were paying. This is only possible with transferable mortgage loans, but if the existing mortgage has a lower interest rate than the rate you'd be eligible for under a new mortgage, you'll enjoy lower monthly payments.

Make an extra payment or two. Many borrowers are unaware that just one or two extra payments during the year can significantly reduce your obligation over the life of the loan. If you pay additional amounts and specify that additional payments should be credited to principal, this will lead to reduced interest over the life of the loan and, in turn, shortens the life of the loan. Extra payments can save thousands in interest costs.  (To find out how much you can save, contact a NewFED loan officer today.)

Negotiate seller concessions. You may be able to reduce upfront costs by getting the seller to agree to absorb certain closing costs or to structure the purchase in a way that lowers the amount you'll need to come up with when you take out the loan. For example, if closing costs will add 5% to the cost of buying the home, the seller could raise the purchase price by 5%. Once the seller has been paid, he could return the additional amount, thereby effectively replacing the down payment.

Reduce PMI. When home buyers pay less than 20% of the selling price up front, they'll typically be required to pay for private mortgage insurance (PMI). This can add thousands to the loan amount. If possible, homebuyers are encouraged to contribute at least 20% at closing, which removes this requirement.

Make 2016 the year you get into your new home. We can answer many questions that often come with a home purchase. Be sure to contact NewFED for mortgage loan pre-approval before you pick out your new home. Happy New Year!