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When it comes to mortgage lending, there is no such thing as a free lunch. You somewhat control the negotiation and have the privilege to ask for the items you want.
However, do not expect a lender (or reverse lender), to say yes to every request. Instead of outright rejecting your application, a mortgage lender may decide to raise your interest rate when you want something that means more risk for another party.
Skipping the Closing Costs
Getting a no-cost mortgage in Utah or any other American state for that matter will minimize your out-of-pocket expenses. In this deal, the lender will take care of the closing costs, so the down payment is the only thing you have to pay upfront. A no-cost mortgage is a good loan if you wish to spend thousands of your dollars elsewhere at that time.
The only caveat is your interest rate will be higher. To what extent it will go up depends on the lender, but do the math to see how much you will pay every month and the total amount of interest, in dollars, with the increased mortgage rate. The interest hike may still cost less than the closing costs, so it is not always a bad deal.
Putting Down a Small Amount
Most lenders no longer offer zero-down mortgages, and you find a loan that requires you to shoulder just 5% of the property’s selling price. Although you are allowed to do so, paying a small down payment naturally increases the risk your lender has to take to loan you the funds.
Moreover, paying a down payment of less than 20% of the house’s value automatically adds private mortgage insurance into the equation. It covers your lender financially in case you stop making payments. This expense will be removed from your bill when your loan-to-value ratio hits 78%, but it will inflate your monthly mortgage payment for several years.
Although a small down payment can ease your entry into the property market, it can make your mortgage so much more expensive.
Extending the Loan Term
In a typical amortization period of a fixed-rate term, most of the early payments always go toward the interest. A lender will prioritize collecting most of their profit to mitigate the potential of a financial loss when you default. That is why you will never see your principal go down as fast as the interest during the first years of your mortgage.
An extended loan term decreases your monthly mortgage payment, but it also increases the amount of time your lender needs to wait to pocket more interest in less time. In consequence, you are likely to be slapped with a slightly higher mortgage rate if you insist on having a 30-year term rather than a 15-year one.
Refusing to Wait More Time and Build Your Credit
If your credit score needs a lot of improvement, a conservative lender can reject your application. A bolder financial institution, however, may take a chance on you but not without charging you higher-than-usual interest.
You can postpone your home loan application and use the time to increase your credit score, which will put you in a better position to negotiate for a more favorable mortgage rate. If you are impatient, though, paying more interest is your punishment.
Nobody wants to pay a higher mortgage rate, but it is a sacrifice you have to make if you are to get the funds necessary to buy the house you like.