Mortgages in Memphis are not a simple subject. There are many more options than most people consider. Should you take out a mortgage requiring the lowest down payment or keep savings to pay a higher down payment to gain the advantage of a lower interest rate? If you already have a mortgage, is it smarter to pay extra principal payments to pay the loan off sooner? Or to refinance so that you have lower monthly payments.
As with most things in life, it depends. It's impossible to cover all of the variables in a single article but we can begin with one of the largest variables - closing costs.
Closing costs also have many variables. Begin with the type of loan you are considering. If you qualify for a VA loan, often there are no underwriting or processing fees (a good thing). If you qualify for a FHA loan, you can expect to pay at least a $550 processing fee with no underwriting. If you go with a conventional loan, expect to pay at least $300 in underwriting and another $640 in processing.
However, for buyers that is only the beginning of the fees you can expect to be charged. The amount of the fees you'll pay will vary depending on the lender you select, the title company you go with, and the amount of your loan. Other typical costs include:
Unfortunately, it doesn't stop there. There can be additional lender fees depending on the type of property that you buy, your credit score, and some other variables. But above are the basics.
Where you want to start is by applying to be prequalified and obtaining a "Good Faith Estimate". The estimate won't be exact but it should be close enough to give you a good idea of all the fees you'll be expected to pay at closing or to wrap into your loan. You can also prequalify with multiple lenders to learn how each one's fees are different.
If you already own a home, it's probably your biggest asset. As such, you should strongly think about your options other than to just keep paying what you're currently paying. You generally have two other options. You can either refinance the loan so that you have a lower monthly payment but will pay for a longer period of time. Or you can make additional payments on your principle each month, which means you'll pay for less time but pay more each month.
Refinancing can be an attractive option for several reasons but is also and expensive option. If you currently have a 30-year mortgage that is 5 years or less old, you may want to consider refinancing. Especially if your interest rate is 1% or more above the current low rates. Depending on your loan amount, a lower interest rate alone can lower you monthly payment by a couple of hundred dollars. If your home has appreciated in value, you might be able to borrow against that appreciation and walk away from the closing table with a check for several thousand dollars. However, keep in mind, that you'll incur at least some of the closing costs discussed above for taking out a new loan.
On the other hand, if you already have a low interest rate, you probably want to consider making additional principle payments each month to shorten the amount of time you have to pay on the loan. As with most things, you have options here. You can either work with your amortization schedule to make a full additional month's principle payment each month or make a flat additional payment each month that applies towards the principle.
For instance, if you start a $165,000 30-year mortgage today at 4.5%, you'll have an $836.03 monthly payment (not including insurance and property tax) that will pay off your mortgage in March of 2045. If you make an additional $200 a month payment towards the principle, you'll pay the loan off in June 2035 (almost 10 years early).
Other options include an extra one-time payment or extra annual payments. You should be considering all of the options you have when it comes to paying off your biggest asset.