Finding the Right Mortgage
Pre-mortgage preparation will help you find the best mortgage for you
Diligence and preparation cannot be underestimated when it comes to finding a mortgage. Ignorance of mortgages, mortgage costs and the mortgage application process will cost you money. If you want to find the best loan, at the best rate, with the best fees, you will need to do some legwork.
The best loan and the cheapest loan are not the same
The type of loan you get and the terms you get it for depend on you and you alone. Loans should not be determined based on what a lender wants to give you. You need to be in a position to tell a lender what you want and make sure that you keep the lender working for you.
Follow some easy steps to ensure that you get the best loan for you
- Educate yourself about different mortgage products and have an idea about which one you want to apply for. There are many different loan products available. Some of these are the more traditional 15-yr and 30-year fixed-rate mortgages, while others are interest-only loans, ARMs and even 40-year mortgages.
Know how each of these loans works and what the implications are to you in both the short and long-term if you were to accept any of them.
- Keep an eye on interest rates. There is no way to predict exactly what interest rates will do in terms of rising or falling. Rates do tend to trend, however, so watch them closely. Making the decision to either use a long-term rate lock or just float your loan (wait until closing approaches to lock in a rate is never easy.
- Be aware of how much a loan should cost. There are numerous rates and fees that you should be aware of. The most substantial fee is the loan origination fee. This is typically 1 percent of the loan amount. It may be a little bit higher depending on the size of the mortgage and the length of the rate lock.
Points are paid to buy down the interest rate to an amount below market value. If you are paying points, make sure that your rate reflects it. You have the alternative of getting a no fee mortgage. Remember, no fees mean a higher interest rate.
- Shop around for your loan. You may feel comfortable working with a particular lender. The big names tend to me more trusted. Credit unions are also a good option for finding a mortgage.
If you don't mind having your loan sold immediately upon closing, then you may want to consider a mortgage broker. Mortgage brokers work with many lenders and can find the lenders with the best rate, point, fee and mortgage programs.
- Ask for lower fees. As real estate prices and loan amounts have increased, the commissions earned by the professionals in the field have stayed the same. The result is that real estate and mortgage professionals make more money for the same amount of work at a cost to you. Mortgage rates should always be looked upon as "suggested" and never set in stone. Note: This matter of a suggested rate applies only to fees above 1 percent. 1 percent is the minimum that a lender will accept.
This is the information that you will need to apply for a loan. What about your other important documents? You might as well organize those too. File cabinets and folders work very well for organizing important documents. All you need to do is put the subject title on each folder then fill the folder with the relevant documents. You can have separate folders for homeowner's insurance policies, automobile insurance policies, automobile titles and repair receipts, brokerage account statement, retirement account statements, bank account statements are you getting the idea?
Other factors to consider before applying for your loan
If you are planning to refinance, you should first consider your reasons for doing so. Are you trying to lower your house payment? Perhaps you are trying to consolidate consumer debt. Maybe, you are planning an addition to your home. It is important to consider your refinance in relation to your current and future financial situation.
If you are buying a new home you will need to first determine how much home you can afford. Factors that affect this are how much equity you have in your existing home, your down payment, the amount you can afford for your monthly payment. There are many excellent financial calculators available to assist you in this.
Make sure that you have clean credit before you apply for your loan. The better your credit score, the lower your interest rate will be. You can obtain a copy of your credit report and resolve any problems before applying for the loan. An important consideration to keep in mind is that your debt should not exceed 36 percent of your gross income. You can still qualify for a loan with less than stellar credit, but you will pay a higher interest rate.
Since you have already considered your financial goals, you can now do some research and decide which type of loan works best for you. If you have paid for a long time on your home, you may want to consider a 15-year loan. The interest rate is lower. Maybe you need to take some cash out to complete an addition to your home. There are many different types of loans and many different lenders. It really pays to do your homework. Click here to see our listing of preferred lenders.
If necessary, lock in your rate well in advance of closing. For more information about rate locks see our article about the subject here.
A little bit of preparation can pay big dividends when it comes to home loans. We hope that you will take the time to maximize your mortgage potential.