September 8, 2016
Choosing a Home Loan
Dan Sandri — Chief Auditor of the Department of Real Estate discusses home loan issues to consider when buying a home.
My name is Dan Sandri. I’m chief auditor of the California Department of Real Estate.
Evaluate Home Loan Terms
After you’ve evaluated the loan terms for all the loans that are available to you out there, it’s time to choose the loan that best fits your specific circumstances. First off, you want to look at, “What payment amount does your budget allow?” You need to consider, for instance, whether you want to go with a 30 year loan, which will provide you with lower monthly payments, but a higher amount of interest that you pay, overall.
Or, if you can afford it, a 15 year loan would provide you with a little bit higher monthly payments, but overall a much lower amount of interest you’d pay. Also, lenders will often not allow your debt expenses to be over 36 percent of your monthly income, so you need to consider that, too.
If you don’t plan to live in the house for a long time, you might consider an adjustable rate loan, which will give you a lower interest payment early, but you have to beware of what the rate cap is on that loan to see how high your interest payments will escalate. You need to be able to pay for those higher payments down the line.
Consider Home Loan Costs
You also need to look at what loan costs are in the options that are available to you. Those include points and fees that you pay in escrow. You also need to look at the interest rate and finance points and fees that you pay with your monthly payment.
A way to compare those is to look at the mortgage loan disclosure statement. You can ask for that up front and compare mortgage loan disclosure statements between the loans you’re considering. That way, you can look and see which loan is best for you, cost wise.
What Can You Afford in a Home Loan
Finally, you need to look at the overall, whole picture. Can you, for instance, afford to pay 20 percent down, which would be a loan to value loan of 80 percent? If you can pay 20 percent down, you may not have to pay private mortgage insurance, and that will save you quite a bit of money.
You can also look at where there’s a penalty for pre payment on the loan. Finally, are there any special programs that are available to you, such as if you’re a first time home buyer? Or, if you’re a veteran, there may be some really great loan programs out there that’ll save you a lot of money.
In conclusion, you can look at the Department of Real Estate website, which is at www.dre.ca.gov. There’s a lot of information there about mortgage loans and links to other great sites.
Video published in 2012. The Department of Real Estate is now the Bureau of Real Estate.