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Planning for a new mortgage

Mortgage rates continue to be low.  As most financial advisors are saying, now is a good time to buy or refinance a home.  However, not every mortgage is the same and there are certainly things to consider before calling a bank.

If buying a home makes you a first-time home buyer, then before calling a real estate agent or a bank, look at your income and monthly budget closely to determine how much you can afford.  Even in these conservative lending times banks seem to be stretching their client's budgets.  One rule of thumb is that housing costs should not be higher than 28% - 30% of your gross income.  Housing costs include the mortgage payment, and should also include utilities, homeowner's insurance, property taxes, association fees and things like lawn care and/or general maintenance.

For most home buyers having 20% of the purchase price for a down payment is a good idea because it will help you avoid having to pay personal mortgage insurance (PMI).  With 20% down better mortgage rates may also be available.  If you have a down payment that is 20% or larger, most banks, if asked, will make the escrow account an option.  Some homeowners like paying the escrow and letting the bank take care of paying property tax and insurance because that is two or three more payments they won't need to make.  Others enjoy canceling the escrow and making interest on those dollars, sitting in their money market, until those payments come due.

In Cincinnati, there are a couple of mortgage lenders that are able to keep closing costs very low because they will not finance a mortgage and then sell it to another lender.  This enables them to avoid the cost of a particular financing insurance that is usually passed on to the buyer in closing fees.  Union Savings Bank (main office is on Kemper Road in Montgomery) is one of these lenders, and is able to offer typical closing costs of $500 for a new purchase mortgage or $250 for a refinance (those numbers do not include a $100 recording fee to the title agency).

The lender not selling mortgages is also a benefit to the buyer because it can save a lot of hassle.  If the mortgage is sold than there will be new coupon books and new payment instructions, sometimes there are mistakes made with escrow accounts and insurance or property tax payments.

If you're thinking about buying or refinancing, it is a good practice not to open new credit card accounts (or close too many old accounts) within six months of applying for a mortgage.  Every time a new credit inquiry or change shows up on your credit report it can affect your credit score which in turn can affect the interest rate available to you.

Before financing make sure to compare and understand the differences of fixed rate, variable rate and balloon payment mortgages.  Depending on your individual circumstances any of these could be a good choice.

For more information:  "What it Takes to Get a Mortgage" at kiplinger.com        

 for budget calculator at crown.org                    mortgage calculator

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