Debts & Tunnel Vision

David Ramsey has been a popular advocate for eliminating debts.  Additional organizations have followed this path.  People become obsessed with paying off debts.  Is this the right thing to do though?

Debt is not entirely bad.  Everything has a spectrum.  Balance is very important when money is involved.  You do not want to be drowning in debt.  Bills need to be paid.  Your credit can suffer with too much depending on the types.  However, you cannot have a good credit score without active debt.  Credit cards more or less can contribute to your entire score.

Our focus is on your mortgage.  We are experts regarding your home loan.  You should consult a financial advisor when planning your debts in general.  However, I can discuss how people have tunnel vision when strategizing their largest debt (typically).

Most mortgage originators will most likely talk to you only regarding your upcoming transaction.  Home loans are very complex in nature and actually provide some flexibility.  I like to plan your long term goals beyond your short term as a result.  If you’re purchasing a home, you’re filled with the excitement of moving.  You just want to be pre-approved or qualify for the best possible loan.  Is that the best loan for you though?  How long will you be in the home?  Should you pay extra for the best possible rate?  How does the payment mesh with your other debts?

I recently talked to a first time homebuyer.  He has some money saved but not might have enough to qualify for his price range.  Down payment assistance does not make sense.  As a result, we have planned out two scenarios.  We’re pursuing the FHA program so he can get up to 6% in seller concessions.  This is when a seller will help pay for your closing costs and escrow deposit.  If this works out, we’ll be able to get him a very good interest rate.  However, what if they do not want to offer concessions?

If this borrower does not have enough funds and cannot get help from the seller, we can offer to help.  Interest rates are also on a spectrum.  There is a very, very low rate that costs way too much in fees to obtain.  We also have higher rates available.  When these rates are selected, we can actually give a credit to cover costs and escrow.

Now this borrower will be in a higher interest rate and will pay a ton towards this debt in the future, right?  Most people will refinance their mortgage very often.  He’s most likely not going to be in this house a full 30 years.  FHA will allow him to qualify a bit easier and we can streamline his loan in the future.  This is an easier refinance transaction that typically does not cost much because FHA acknowledges you already qualified once.  Every situation is different and we plan all scenarios to help out the borrower.

If you have questions on the best route for you, please contact me!  Next week will be part 2:  Refinance.

Mike Pietila
NMLS ID 847850
Senior Mortgage Advisor
Parkside Lending NMLS ID 176162
mpietila@parksidelending.com
586.466.5080