Real Estate, even your personal residence, is a great way to get ahead financially, especially if you’re in Charleston. But only if you make the best decisions understanding the pros and cons of different options. New Construction is a great option if you have the time to wait, or if you can find a property that fits that’s already started. The costlier replacement items are all brand new; air conditioning, roof, siding, carpet, all the things that get dirty and wear with age are all new. Aesthetically speaking, new everything, and the more modern finishing touches speak very loudly. Smooth ceilings, moulding, garden tubs, up to date wall coverings…it all adds up to a pretty tempting combination.
Another reason people pick new is because of the offer to pay for closing costs if you use the preferred lender. Many times, this is the best deal. And if you don’t have any money to put down, it can be the only way to go as far as financing if you want new construction. However, if you do have money to put down, and to cover closing costs, you’ll want to make some comparisons before assuming that the $3000 or $4000 closing costs the builder is going to pay, is going to be the best deal in the long run. The point is…to make your decision based on all the pertinent factors, not just one or two. We’re working on some visuals to support our discussion that will be ready soon, so keep your eye out for future posts. It’s possible, if you weigh all factors, that the preferred lender may not be the best choice. What are the other factors?
Private Mortgage Insurance: Unless you’re putting down 20%, the chances are good that you’re going to have to pay private mortgage insurance. This is actually insurance to protect the lender, which you are required to pay. It doesn’t sound fair, but if you want to use the lender’s money, it’s their rules. Premiums can vary wildly from $70/month to $133/month for the same coverage.
Interest Rate The interest rate offered by the preferred lender may be competitive. And it may not. You don’t know unless you check and get Good Faith Estimates from more than one lender.
Closing Costs Can vary as well with all lenders. Attorney’s fees, brokerage fees, Loan Origination Fee, Discount Points.
80/20;95/5 etc. There is usually a higher interest rate for the second mortgage or line of credit or whatever they’re calling the smaller note. This needs to be factored in. What 80/20 programs do for you is eliminate PMI. Their downside is the higher combined interest rate. So, you need to make a side by side comparison.
What about Adjustable Rate Mortgages and Interest Only Mortgages. First, the ARM. An ARM is good if you’re going to own the property for a short time, becuase the rate is usually fixed for a predetermined number of years. Interest Only is good if you have good knowledge of the market for the neighborhood in which you’re going to buy, and you’re reasonably certain that the appreciation is going to be solid.
Mortgage Companies don’t like to be shopped. And so if you want all the factors out on the table, you might have to be persistent and know what you’re asking for. You need to know the rate, the closing costs, the PMI, everything that goes into the deal that is going to factor into what you’re going to be paying as long as you’re holding this mortgage. You then need to be able to look at this information side by side, muliple options with multiple lenders.
I have a great offer for you! If you’re planning on buying a new home in Charleston, or any home anywhere for that matter, we will help you make the comparisons. We have a computer program where we can take the information from multiple programs from multiple lenders that shows your actual costs over time on a graph. We’ll have some examples in future blog entries…it’s not quite ready to go public yet. But this simple program can save you thousands of dollars.
So, please get in touch with us if you’d like to make a fair comparison that will calculate, based on the assumptions you enter, what your costs will be over time.