Attention: Baby Boomers. Here are seven mortgage facts you may not have been aware of.
If you’re a Baby Boomer (born between 1946 and 1964), chances are you’ve gone through the home buying process at least once before. You’ve probably helped friends or family members purchase their own homes. You may even consider yourself a mortgage industry veteran or an expert. But in a field as deep and detailed as this one, there’s always something new to learn. Here are seven mortgage facts that every Baby Boomer should know.
You may even consider yourself a mortgage industry veteran or an expert. But in a field as deep and detailed as this one, there’s always something new to learn.
1. You don’t need to pay 20% down
While a 20% down payment is standard practice and a general rule of thumb for many home buyers, it’s not required! With most Conventional loans you can pay as little as 3% down, though if you pay less than 20% you’ll have to buy private mortgage insurance. It doesn’t sound great, but in some cases, paying less than 20% can make more sense. Say you’ve found the perfect house. If you have sufficient income to pay your monthly mortgage payments but don’t have 20% saved up for a down payment, your best bet may be to put down what you have right then and there to secure the home of your dreams.
2. It’s harder for self-employed borrowers to get mortgages
If you’re your own boss, you’ll probably have to jump through a few more hoops when you’re applying for a mortgage. The extra steps shouldn’t be too much of a problem if you go about them the right way, but it’s often easier for someone with a standard, salaried job to secure a loan. If you’re self-employed, you’ll need to supply several years’ worth of tax returns to prove your income is consistent and sustainable into the future. For a more in-depth look at the self-employed mortgage process, check out the blog post linked below!
3. Some kinds of mortgages may fit your situation better than others
There are plenty of ways you can customize a mortgage loan, and you’d be wise to take advantage of them. When you’re shopping for a loan, you’ll want to weigh the pros and cons of fixed-rate and adjustable-rate mortgages as they relate to your financial situation. A fixed-rate loan can be great when interest rates are low and you’re planning on staying in the home for a long time, but an ARM can make more sense if rates are likely to drop and you’re planning on moving in a few years. You should do the same thing with the length of the loan term. A shorter term will give you higher monthly payments and lower interest, but a longer term will do the opposite. It’s all about what works best for you!
4. Paying $100 more per month can shave five years off your loan
It’s common sense to think that making extra mortgage payments can increase your equity and reduce your debt more quickly, but it’s easy to sleep on just how powerful it can be. Paying just $100 extra than your minimum payment can knock five years off your loan and save you more than $30,000 in interest payments! An extra $200 a month takes eight and a half years off your mortgage and saves you more than $50,000 in total interest. Sounds like it may be in your best interest to try and pay a little extra where you can.
5. A good credit score can save you thousands of dollars
While we’re on the topic of saving money, do you know just how much power a credit score has over your interest rate? A low credit score can keep you from getting offered some great interest rates, which could save you tens of thousands of dollars in the long run. The difference in total interest paid between a 760 credit score and a 620 score on a 30-year fixed mortgage is upward of $80,000! It’s probably a good idea to get that credit score up as high as you can before you apply for a mortgage.
6. Income over assets
When it comes to getting a mortgage, income is king. You could have a million dollars sitting in the bank, but if your income is deemed insufficient, you could still have trouble getting pre-approved for a mortgage. Lenders care more about your income than your assets because they want to be sure that you’ll be able to make your monthly payments. They’ll look at your debt-to-income ratio and compare everything you owe with what you’re bringing in. And they don’t want to see the former overshadow the latter.
When it comes to getting a mortgage, income is king.
7. It’s best to enter retirement mortgage-free
If you’re thinking about retiring soon, it’s a good idea to try and pay as much of your mortgage, if not all of it, off before you stop working. During retirement, you’ll probably be living off less income than you were while you were working, so those mortgage payments might hit a little harder. Having your home paid off can help you feel more at ease as you journey into the next chapter of your life with mainly property taxes, home insurance, and maintenance to worry about. It may even be worth it to work a part-time job just to be done with your mortgage for good!