Interest rate VS APR
A common misconception about interest rate is that it’s the same thing as APR.
Though the interest rate is an important factor when comparing mortgages, APR is more so in the aspect that it tells you not only about the interest rate, but also any broker fees, points, and other charges that may be needed to get the loan.
The APR is a rate that clues in the buyer to what fees are included in the loan itself, and is a good comparison tool to use than just the interest rate alone.
Approved loan amounts
One may believe that what the bank approves you for, you can pay back. However, this may not always be true.
While the bank has only the goal that it gets its money back, you as the buyer may have other hopes; such as saving money for your kids’ college or retirement. The bank won’t consider any of the possible repercussions the mortgage may have on your financial goals. I often advise the buyers to evaluate if the monthly payment is comfortable for them before going out shopping. That means to keep the life style you would keep after purchasing a home, rather than the loan amount qualified based on gross income.
20% down payment
Today’s down payments can be as little as 3%. Though it may be a common standard to have a 20% down payment to have a favorable rate comparing with 3% down payment, new studies have shown that this may not be the best course of action depending on one’s investment strategy.
With housing values constantly rising, it may be difficult to come up with the 20% down payment, especially for those with credit score concerns or lower-paying jobs.
Therefore, sometimes taking on a little more debt or temporarily paying for mortgage insurance is great start to get a house.