When buying a property, it can be a bit confusing to evaluate which is the best deal and which is the most convenient for you. Here we explain what you should take into account when evaluating a transaction, from extremely low interest rates to zero origination and discount fees.
Sometimes the origination and discount fees required for a lower interest rate deal on a mortgage transaction may not make a significant difference in your monthly payment and instead eat up the money you have available at closing. The basic rule that you should follow is to calculate the amount of this expense versus the savings in the monthly payment that the interest rate can offer you, so that you can analyze how long it would take you to recover that money that you contributed on the first day. If that expense is recovered in one, two or three years, then paying for a lower rate may be a good decision, so that difference and the desirability/ability of including it or not in the mortgage amount would have to be analyzed.
In most refinancings, origination and discount expenses can be included within the same transaction, as long as the value of the property provides the necessary equity. Other qualification conditions must also be taken into account to approve the transaction, such as your credit, payment capacity and/or income, among other factors. It is important to remember that you will be paying these expenses little by little over the life of the mortgage, including interest on that additional amount.
Regarding the interest rate and/or origination and discount expenses, mortgage offers are generally similar for both sales and refinancing. However, tha case of a sale, the amount to be financed is determined taking into consideration the sale price or appraisal, whichever is lower. For example, in FHA loans you can finance up to 96.75%, in veterans and rural loans you can finance up to 100%, and in conventional loans up to 97%, with mortgage insurance, so depending on the type of loan you will have to contribute an additional item known as the prompt payment or “down payment”. This prompt payment, which cannot be financed within the loan, is added to the closing costs item, as part of the contribution that the client must make.
Regarding a sale, there are alternatives in which both the selling party and the bank could cover part of the closing costs, but this will depend on the type of loan and the requirements of each investor. The important thing is that you educate yourself properly and evaluate all the alternatives that are available depending on your particular need.
To learn more about this topic and/or before starting your mortgage procedures, at Oriental we are ready to guide and serve you, click here or call us at 787.777.CASA (2272).
