Understanding your entire financial commitments as a San Bernardino home buyer is an important aspect of the closing process on any home, and it’s easy to get caught up in the excitement of moving into your new home and leave concerns unanswered. Let’s look at what San Bernardino home buyers need to know about mortgage points to make sure you’re a well-informed buyer with your head on straight:
What Are Mortgage Points?
Mortgage points – often referred to simply as “points” – are a way of putting additional money down on your new home at closing in an attempt to receive better terms for the life of your mortgage.
A single point is one percent of the home’s total cost. So, if your new home will cost $100,000, each point you choose to acquire at closing will cost you $1,000 more.
This may sound like a pretty hefty supplemental upfront investment, but there are ways spending a bit more now can pay off down the road.
What Can Mortgage Points Do for Me?
Now that we know the cost of each point, we can start delving into what these points actually do for you.
The goal of points is to increase the initial owner investment in the San Bernardino property, which means you’ll have greater equity in the home when you close. If you’ve taken out a 20- or 30-year mortgage with the intention of staying in your home for the duration of the loan, you’ll only benefit financially as time goes on.
Purchasing points is one of the most effective strategies to obtain an advantage in negotiating a lower interest rate; a lower interest rate means paying less money each month to your lender in exchange for them granting you access to the borrowed funds.
Should I Bother Purchasing Points?
The easiest way of answering this question is that any home buyer should at least look into the details and potential savings from purchasing mortgage points.
It’s not a bad idea to do the figures to see how much you could save and when you’d break even between the upfront cost of buying points and the savings from a lower interest rate.
However, the biggest drawback to buying points is that the amount of money you can save is totally dependent on the restrictions set forth by your mortgage lender. You can try to negotiate better conditions, but when it comes to the benefits of mortgage points, your lender’s structure is frequently set up for all lenders.
As previously indicated, the simplest way to determine if you will be able to benefit from the discounts provided by purchasing points is to calculate when the costs of acquiring the points will be offset by the savings they give.
What Else Can Impact My Monthly Payments?
Besides mortgage points, there are other factors that go into determining your mortgage’s interest rate.
Your credit score can have a modest impact because it reflects how you’ve handled available credit in the past, but your debt-to-income ratio, or DTI, will be a bigger factor in this equation. Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward debt repayment and overhead.
It displays your monthly available funds to a lender and your ability to pay the appropriate amount on time.
Help Understanding Mortgage Points in San Bernardino Home Purchases
When buying a home, it is critical to understand all of your alternatives in order to make the best financial decision possible. Contact us today at 951-476-3231 if you’re seeking to San Bernardino buy a home and want to learn more about mortgage points and what they can do for you.