Getting Started

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To Buy Or To Rent

• Building equity. Depending on your loan type, your principal monthly payments may increase the equity you have in your home. Equity is defined as the money you have invested in your home. Your equity also will increase as the value of your home appreciates.



• Saving on federal income taxes. Mortgage interest and property taxes may be deductible for federal income tax purposes.



• Stable payments. Monthly rent usually increases with inflation. Mortgage payments with fixed-rate mortgages will stay the same until the loan is paid in full (although increases in property taxes and homeowners insurance rates may affect your payments).

Renting is the better choice when:

• You are not going to remain in your home for at least 5 years. During the first few years of home ownership, you will pay mostly interest. Add in realtor costs, insurance, maintenance fees and other expenses, and you will likely find that renting for short periods is more cost-effective than buying.



• You are between jobs or have a new employer, making it more difficult to qualify for a loan.



• You are separating from the military and need to save money during your transition.



• You cannot afford a monthly mortgage as well as the ongoing costs of home maintenance and repairs.

Seek Prequalification Or Preapproval

• Prequalification: The lender decides how much you can borrow based on the information you provide about your incomes, debts and other obligations. With prequalification, the lender is not obligated to finance your mortgage.
  
  
• Preapproval: The lender examines your credit report, income, assets and debts before providing written confirmation that you have been conditionally approved for a loan up to a certain amount. Preapproval strengthens your buying position, because sellers know that a lender is likely to approve your loan.
  
  

Preapproval does not guarantee your loan. Lenders provide a final loan commitment until after the home passes inspection, appraises at or above its sales price and you meet the financial requirements for a loan.

The USAA Educational Foundation publications, Managing Credit And Debt and Financial Planning And Goal Setting, offer more information.

Selecting A Lender

• A mortgage banker is a commercial bank, credit union or financial institution, such as a savings bank or savings and loan association. A mortgage banker generally offers competitive loan programs and rates.



• A mortgage broker functions as a mediator between you and the lender. Mortgage brokers generally charge a fee to you or the lender when the loan closes.

It is important to compare costs between lenders. Discount points, fees, penalties and lock-in rates can vary. Consider these factors when selecting a lender.

• Closing costs. These include the following fees.
  • Lender fees are collected by the lender and are used to cover the costs of pricing, originating and processing the loan.
  
  
  
  • Third party fees are collected by the lender but passed on to other service providers such as a credit reporting agency, appraiser, title company and local taxing authority for recording the deed.
  
  
  
  • Prepaid items include interest, insurance and property taxes. Insurance and property taxes are generally prepaid for 6 to 12 months.



• Discount points. Some lenders let you pay one, two or three “points” to lower your loan’s interest rate. Each point paid is approximately 1 percent of the loan amount. For example, one point on a $150,000 loan is $1,500. Points paid are generally deductible from your federal income tax. Consult your tax accountant for your specific situation.



• Loan origination fees. These usually equal 1 percent of the loan amount and are paid at closing. The fees are paid to the company that originates your loan to cover costs associated with creating, processing and closing the mortgage.



• Their policy for locking in an interest rate. This is important, especially during a period of rising interest rates. You may want to “lock-in” on an interest rate and points for a specific time period, usually 30 to 45 days.



• Their policy for selling mortgage servicing. The lender who grants your home loan may not be the one who collects payments, manages escrow funds or provides other service-related functions.

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