Advice on Buying and Refinancing
Some brokers and bankers will try to tempt you in way over your head. Don't make that mistake. Here are some tips to help you make the best decision for your family.
- When establishing parameters for what you can afford, look for houses on which you can put at least 10% or, ideally, 20% down, advises Linda Patchett, a financial adviser in Chapel Hill, NC. Some banks and mortgage companies will offer no-down-payment loans that allow you to borrow the full purchase price of your home. These are high-risk propositions, however, since you're likely to owe more than your house is worth if there is a real estate downturn. Avoid them.
- When figuring out your new budget, limit your mortgage payments, real estate taxes, and homeowners insurance to 28% -- 36% if you include pre-existing debt, such as credit card bills and student loans -- of your pre-tax household income, recommends Cheryl Costa, a financial adviser in Natick, MA. If you anticipate a drop in your family's income or big spending increases, such as childcare costs, stick with the lower end of that range.
- If you're thinking about refinancing, only do so when rates are low enough that your monthly savings will soon outweigh your bank fees, says Christopher Currin, a Dallas-based financial planner. Comparison-shop since there is a wide range of closing fees and you don't want to spend any more than you absolutely need to. Then try to refinance at a level that will keep your mortgage within 50% to 80% of your home's current value.
- Take advantage of free resources from consumer organizations, like "Tips for Consumers Refinancing Their Home" (www.consumersunion.org/finance/refinance.htm).